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The U.K. changes direction and abolishes plan to cut taxes on high earners


The government of the U.K. has been forced to make an embarrassing change. Days after the new U.K. finance minister proposed tax cuts, the government is scrapping some of them, the ones for Britain's highest earners. The package of unfunded tax cuts spooked investors, pushed the pound to record lows and prompted Britain's central bank to announce it will buy up government debt. Willem Marx reports on what all this has meant for British homeowners.

WILLEM MARX: Hannah Stubbs owns a small home in Staffordshire in the heart of England. She and her partner wanted more space, a new home with an extra bedroom and a location close to good schools for their young daughter. They started looking earlier this year and got a mortgage offer approved. But the sale of their current home has taken a long time to go through.

HANNAH STUBBS: We had a mortgage rate, really low mortgage rate, set literally six months ago. And then, because of our house move delay, we've had to reapply for that mortgage two weeks ago. And it has doubled.

MARX: The initial interest rate their mortgage lender was demanding from them is now twice as high, meaning their monthly payments will be much higher, too. They could pay more than $8,000 extra over the next five years, all while living costs are rapidly rising as well.

STUBBS: That's massive. And that's without the gas and electric that's going up, the food that's going up. It's massive. And compared to - like, our wages are not going up as quickly as the costs are.

MARX: For Hannah and her family, this new reality may force a painful rethink.

STUBBS: It's heartbreaking. We're now thinking, is this feasible? Should we be risking doing this now? And we're potentially going to lose our dream house. Yeah, it's been really stressful.

MARX: Stress levels for millions of others in Britain had risen after the new government of Liz Truss announced a series of tax cuts last month that were neither fully detailed nor independently analyzed. That meant global investors lost trust in Truss and her plans, driving down the pound, pushing up the government's borrowing costs and forcing economists to forecast much higher interest rates.

SCOTT TAYLOR-BARR: We'll describe the last week as challenging, is the polite way of putting it, I think.

MARX: Scott Taylor-Barr is a financial adviser who helps homebuyers find the right mortgage and says mortgage providers have struggled to keep up with the very unusual volatility in global debt markets. Many have raised the prices of their mortgage products, he says, or stopped offering them altogether.

TAYLOR-BARR: Their own cost of funds are moving so rapidly that they can't actually price something that is going to be viable for them as a business because let's remember, you know, banks and building societies are businesses, not charities. If they can't launch a product that's going to be viable for more than a few hours, then simply, it can't be done.

MARX: For the U.K.'s mortgage brokers, the people who interact with both the banks and the would-be buyers to ensure the right paperwork is filed, it's been an unprecedented period.

RAY BOULGER: There's going to be business on your desk, which you need to process quickly. And there just won't be enough hours in the day to actually get everything done when you've got very tight deadlines.

MARX: Ray Boulger at the independent mortgage brokers John Charcol has decades of experience and said possible problems with the Liz Truss premiership first surfaced as she fought for the job against former finance minister Rishi Sunak this summer.

BOULGER: There were completely different economic policies being proposed by Truss and Sunak. If Truss went ahead with the plans that she envisaged as was pointed out by Rishi Sunak during the campaign, there were going to be consequences. Most of us thought - including me thought there would be severe consequences but not as severe as there have been.

MARX: The former deputy governor of the Bank of England, Charlie Bean, says the fallout will be felt far beyond the housing market.

CHARLIE BEAN: For some households, they're going to have to cut back their spending possibly quite significantly. And that will clearly impact on the level of demand in the economy overall.

MARX: Ironically, Bean says, the higher mortgage costs may end up outweighing the possible benefits for households from the government's new tax cuts. After more than a week of unintended consequences, homeowners and homebuyers are hoping calm and at least some certainty could one day return.

For NPR News, I'm Willem Marx in London.

(SOUNDBITE OF L'INDECIS' "STAYING THERE") Transcript provided by NPR, Copyright NPR.

Willem Marx
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