A couple of weeks ago, chancellor Rachel Reeves delivered her first Budget. Here’s how the measures introduced will affect prices and prospects for buyers, sellers, second home-owners and everyone in between.
By Anna Solomon
On 30 October 2024, Labour set out its fiscal plans for the year ahead. Expectations of clampdowns on multiple homeowners, with breaks for the poorest in society, had been swirling. Aspiring homeowners hoped for a silver bullet to help them get onto the property ladder.
When it came to housing, Chancellor of the Exchequer Rachel Reeves’ 2024 Budget was, for the most part, passive, with few meaningful implications for the wealthy and little relief for first-time buyers. However, Labour did arguably deliver on its promise to help vulnerable families, pledging £5 billion of investment for affordable housing.
Here, we delve into the particulars of exactly what the statement means for various groups, and how it plays into an overall picture of a housing market slowly but surely recovering from interest rate hikes and other challenges.
Homeowners
Autumn is typically a busy time for transactions, and this year has been no different, with Rightmove reporting that sales are up 29 per cent compared to the same time last year. “Whilst there is still optimism that interest rates will lower even further, buyers seem to have settled into the new normal of higher rates than what we had been experiencing for over a decade,” says Lisa Simon, head of residential at Carter Jonas.
Supply is also up, with the number of homes currently for sale 12 per cent higher than in autumn 2023. While activity is healthy, Rightmove did record lower-than-average price growth in October, illustrating that sellers still need to set a realistic asking price to find a buyer.
At the prime end of the market, buyers are having their moment, says Tom Kain, a partner at buying agent Black Brick, citing “a growing level of data showing conditions are improving for buyers of property over £2 million”. “Anyone who bought within the last 10 years is finding it hard to make their money back if they are re-selling, and asking prices are dropping and bigger discounts are being negotiated,” he says, adding: “In some areas, like the catchment areas of top-rated state schools, it may be a good time to sell.”
The prime market is generally more resilient to fluctuations, as a smaller percentage of these homeowners have debt on their property. “Luxury properties will always be in high demand, as evidenced by the volume of high-value transactions that have happened this year,” says Samuel Richardson, head of sales at Carter Jonas. “International buyers continue to place confidence in the prime London market’s position as a safe place to invest.”
Second-home owners and landlords
Perhaps the most notable measure announced in the Budget was the two per cent stamp duty increase for second home purchases. The surcharge rose from three to five per cent, which amounts to an additional £10,000 on a property of £500,000. While this may give some second-home buyers pause for thought in the short term, and may result in some deals falling through (buyers will now have to raise an additional £7,000 if they are buying an averagely-priced UK home), the charge is likely to become just another that second home-buyers become accustomed to.
This is especially true as, historically, stamp duty increases have had a downward effect on prices, Kain points out. The value of stamp duty is likely to simply be knocked off asking prices. Richardson agrees, recalling the three per cent stamp duty hike for second homes brought in in 2016: “This had relatively little impact on the central London market, in fact, the annual growth that year was 8.1 per cent.”
The stamp duty increase is manageable. What would have been less palatable for second-home owners would have been an increase to capital gains tax (which is paid on any profit made from the sale of a property). For those who own property as an investment, therefore, the overriding response to the Budget is likely to be one of relief.
Renters and first-time buyers
Little relief was offered to those aspiring to get on the property ladder. Mortgage rates remain high, rents remain high (hindering people’s ability to save for a deposit), and the Budget made no mention of an extension to the current stamp duty relief for first-time buyers, which is due to end in March 2025. At the end of March the threshold at which first-time buyers do not pay stamp duty is likely to fall from £425,000 to £300,000. According to Hamptons, 37 per cent of first-time buyers currently pay stamp duty in London; by April this will have risen to 71 per cent.
Further, there are fears that the additional stamp duty might deter small private landlords from adding accommodation for tenants, leading to further rent rises. That said, Simon believes the opposite may be true: “Legislation that hinders investment from second-home owners, leading to many choosing to downsize or entirely get rid of their property portfolio, may mean that more options may come to the market for first-time buyers.” A realistic assessment of the impact of the stamp duty increase for second-home owners on first-time buyers, therefore, is that it will be negligible.
A small consolation (especially as banks are already doing this) comes in the form of the rebranding of the Mortgage Guarantee Scheme as Freedom to Buy – the government’s guarantee to lenders against 95 per cent mortgages so that first-time buyers only have to find a five per cent deposit.
The verdict
Arguably, the winners of the Budget are vulnerable people, with Labour setting out hard targets for affordable housing. Meanwhile, those at the top remain relatively unscathed, which could and should be considered a win for them. It’s those in the middle who lose out. However, one thing that can be said with certainty about the Budget: the fact that it is now over will bolster the market. Reeves’ statement has put to bed a period of uncertainty, meaning that transactions can now forge ahead with confidence.
