How might the Autumn Budget affect the housing market?
The property market is, finally, doing well.
In September, a closely-watched survey of estate agents found that sentiment in the market turned positive for the first time in two years. Market sentiment has improved as mortgage rates have started to fall. House prices have ticked up to their highest level in more than two years.
But there has been speculation that the Autumn Budget, with the much-publicised talk of its painful nature for the broad-shouldered, or those that own more than one home, will change this.
Some of this can be attributed to pre-budget jitters, uncertainty and a general tide of negativity overtaking any budget-related conversation. Some will probably materialise.
So what might happen, and who would be affected?
With income tax, national insurance, VAT and corporation tax off the table for the budget, capital gains tax, pension taxes, inheritance tax and stamp duty are in focus.
Two of these taxes – capital gains and stamp duty – would have a direct impact on the housing market by affecting incentives to buy and sell property.
Landlords
A rise in capital gains tax, the tax on profit made when selling an asset, would squeeze margins for landlords selling buy-to-lets or completing property flips.
It could lead to fewer landlords entering the sector and more leaving: In 2022, Capital Economics forecast that a tax hike would see 790,000 properties sold and 120,000 fewer purchases.
In fact, a group of landlords today wrote to the government to urge ministers to “reconsider the way the private rented sector is taxed” and cited Institute for Fiscal Studies (IFS) Paul Johnson, who said it had “become increasingly penal”.
While referencing both potential rises to capital gains and the three per cent stamp duty levy on homes purchased for renting, they also asked ministers to consider removing the levy for landlords investing in projects that increase housing supply.
Fewer amateur landlords in the market would not only affect the rental market in the short-term, but would also lead to a long-term shift in the supply of rental homes from amateur landlords to firms, who are subject to corporation, not capital gains, tax.
Renters
If landlords do leave the market, rents will naturally rise as demand falls. The number of rental properties available is still 20 per cent below pre-pandemic levels, while the average rent is up by about 40 per cent.
One expert described the rental market as a “pressure cooker ready to explode” back in August, adding that renters “are being squeezed on all sides”.
This is not Labour’s fault, and it is something they have said they want to fix by improving the supply of houses to be bought and rented.
It is also worth keeping an eye out for references to “new towns” in the budget.
Labour have said they want to build ‘exemplary’ developments of 10,000 or more homes, with at least 40 per cent being guaranteed as affordable homes.
The budget may contain more information on these investments, which could – in time – offset changes to the make-up of the rental market and release pressure on renters.
First-time buyers
The key things to look out for here are stamp duty and other potential help-to-buy policies.
As it currently stands, the nil rate stamp duty threshold is set to fall from £250,000 to £150,000 at the end of March 2025, and from £425,000 to £300,000 for first-time buyers. The threshold was reduced in 2022 to boost the property market.
Commentators have called on the government to implement or extend property-related incentive schemes, with calls for reform growing ahead of the budget.
Anthony Emmerson of mortgage experts Trinity Financial told the Winkworth’s Property Exchange podcast this week: “The last time we had a stamp duty holiday and incentives for first time buyers up to certain levels, it was all taken very positively by the market.
“It created a lot of first time buyers to be able to enter the market without too many hurdles and requirements for much greater levels of deposits and cash to be able to pay these fees. I think it would be very well received.”
Property giant Rightmove similarly called on the government to retain the stamp duty threshold for first-time buyers earlier this year.
Tim Bannister, Rightmove’s property expert, said: “Stamp duty is a barrier to movement, and keeping the existing thresholds seems like a logical step to providing some first-time buyer support.”
Property developers
It’s also worth giving a mention to policies related to property developers that could appear in the Budget.
This could come in the form of incentives to build on green-belt land, long-awaited financial and bureaucratic reforms to the planning system.
After all, if the government manages to unlock its promised 1.5m homes in the next five years, the extra supply could cause a huge shift in the market, with comparatively cheaper houses, rents lower as a proportion of income, and more houses sold.