When you're stretched financially trying to pay a mortgage, every penny of take-home income matters. That's why new Prime Minister Andy Burnham's promise to examine tax relief has caught the attention of homeowners and buyers across the UK.
But before celebrating a potential tax break, there's something already happening to your salary that's quietly making homeownership harder: income tax thresholds have been frozen until April 2031.
How frozen thresholds squeeze your finances
The personal allowance – the amount you can earn before paying income tax – hasn't moved since 2021. With inflation at 2.8% and wage growth varying across sectors, this means a growing slice of your earnings gets taxed each year, even if your actual spending power hasn't increased.
Imagine earning £28,000 a year in 2021 and the same today. You're paying more tax in real terms, whilst your actual purchasing power has weakened. That's the cumulative effect of the freeze.
For someone buying their first home on a typical £270,080 property with mortgage rates hovering around 6.6% for two-year fixes, this extra tax burden reduces the amount available for deposits and monthly repayments. It sounds like a small squeeze, but over the course of a mortgage application, it can mean the difference between being approved and rejected.
What Burnham is actually saying
In his first speech as PM, Burnham acknowledged the cost of living pressure many households face. He promised policies aimed at giving people "breathing space" and confirmed he'd be examining whether people should be allowed to earn more before facing the taxman.
However, he was candid about the obstacles. Changing the personal allowance would be "difficult" in the current economic climate, he admitted. Why? Because higher tax thresholds mean lower government revenue. Money has to come from somewhere else, or the government borrows more.
The new Chancellor, John Healey, will be tasked with finding that funding when the first Budget arrives this autumn. Burnham has hinted at "asking for a little bit more" in tax from some people, suggesting any personal allowance relief might be offset elsewhere.
The trade-off dilemma
This is the tension facing any new government serious about tackling cost of living pressures. Supporting energy bills, transport costs, affordable housing and care provision all require funding. Raising personal allowances is popular, but it reduces the tax take unless something else compensates.
Recent history offers a cautionary tale. The previous government cut energy levies by £150 annually in April, but bills rose again within months due to geopolitical events affecting oil markets. External shocks can undo carefully planned financial relief in weeks.
For homeowners and buyers, this means promises made today might not translate to improved affordability tomorrow. The international economy is increasingly volatile, and housing affordability depends on stable income, reasonable mortgage rates, and tax consistency.
What homeowners should consider now
If you're thinking about buying or remortgaging, don't wait hoping for tax relief that may not materialise or arrive too late to help. Current mortgage rates averaging 4.81% for five-year fixes offer more certainty than betting on future tax changes.
If you're in the process of a mortgage application, focus on the income you actually receive after tax today. Lenders assess affordability based on current circumstances, not hypothetical future tax cuts. Your annual house price growth at 3.8% is real; a promised personal allowance increase isn't.
For existing homeowners, frozen tax thresholds mean your disposable income is being eroded subtly. If you're managing a mortgage on a tighter budget, tracking your actual take-home pay matters more than headlines about tax policy talks.
The longer view
Burnham's willingness to examine the personal allowance suggests recognition that current policy isn't working for ordinary earners. Whether any change reaches the statute book, and how quickly, remains uncertain. The 2031 freeze date was set years ago, and reversing it requires political and fiscal will.
For now, homeowners and buyers should interpret this as positive sentiment without betting your financial decisions on it. Tax relief is worth having if it arrives, but your mortgage affordability and housing plans should rest on stable ground, not speculative policy announcements.