The moment many of us have been waiting for has finally arrived. Yesterday, after months of speculation, warnings, and even a little scaremongering, Chancellor Rachel Reeves became the first female chancellor to deliver a Budget.
The ‘difficult decisions’ Labour had warned the nation that this Budget would include have now come to light and we can finally assess the changes.
The Budget covers a lot of ground, so we’ve summarised the key relevant points and what they mean for the mortgage market.
Stamp Duty increased from 3% to 5%
The biggest takeaway from the Chancellor’s Budget is the increase on the Stamp Duty surcharge paid on second home purchases. Second home buyers can expect to pay 2% more on Stamp Duty, which makes the new bands as follows:
£0 - £250,000 - 5%
£250,000 - £925,000 - 10%
£925,00 - £1.5m - 15%
Above £1.5m - 17%
This comes into effect today, 31 October 2023, which means anyone currently in the process of buying a home might feel a shock if they suddenly need to gather a little more money than they had budgeted for.
Any change on first time buyer Stamp Duty relief?
In September of 2022, the threshold up to which buyers are exempt from Stamp Duty was increased to £425,000 for first time buyers and £250,000 for home movers. This saved the average buyer a total of £2,500!
This was due to end in March 2025 so there were hopes that Labour would extend this relief for first time buyers, but there was no announcement on the matter. This does mean that as of April next year, first time buyers will pay 5% on properties valued between £300,001 and £500,000 and lose the relief entirely on any value above that. And the rate at which Stamp Duty is charged for home movers will fall from £250,000 to £125,000 and the 2% Stamp Duty will need to be paid on the portion between £125,000 and £250,000.
What does this mean for the housing market right now?
There is a chance we will see buyers, especially first time buyers, hurrying their plans to finalise their purchase before these charges go up. Many buyers might be feeling pressure to agree a deal in the coming days to complete on time and avoid the new charges.
Capital Gains Tax on residential property remains unchanged
Capital Gains Tax is the tax charged on profit from the sale of assets, including second homes.
There were many fears that there would be an increase to Capital Gains Tax on residential property, which would have meant landlords would need to pay increased tax on any income they make from rental properties. Many rental homes were put on the market out of fear of this rumour, alongside many of the other costs that have increased for landlords over the years.
The good news is that this was simply a rumour – Chancellor Rachel Reeves confirmed that the current rates of Capital Gains Tax will remain unchanged for residential property.
But the Chancellor is increasing Capital Gains Tax on assets other than residential property. The increase for lower rate taxpayers (people earning under £50,270 a year) is from 10% to 18% and for higher rate taxpayers (people earning over £50,270) it’s increasing from 20% to 24%.
While this change is unlikely to impact first time buyers, it could throw up challenges for property investors.
Inheritance tax rules for property to remain until 2030
Currently, the first £325,000 of a property’s value can be inherited tax-free. If the property is passed on to direct descendants like children and grandchildren, this rises to £500,000. This even increases to £1 million if the property is passed onto a spouse and then inherited by direct descendants.
These rules will remain in place until 2030.
£500 million pledged for affordable housing
Sticking to Labour’s manifesto to ‘get Britain building again’, the Chancellor is increasing the supply of affordable housing through a £500 million investment plan.
She intends to do this by increasing the Affordable Homes Programme to £3.1 billion, providing £3 billion worth of support and guarantees in a bid to deliver 33,000 homes and also support small housebuilders.
Another way the government is setting out to increase the supply of affordable housing is by reducing Right to Buy discounts so that more council homes remain within the sector. This is to make sure there is more affordable housing available to renters, but it doesn’t help get more people on the property ladder.
However, the government has stated that England’s existing social housing supply is ‘depleted every year by the Right to Buy scheme, while also disincentivising councils to build new social housing’.
Local councils can now also retain full receipts from transactions so that the money can be reinvested back into housing stock.
What does the Budget mean for mortgage rates?
The bad news is that the quick fall in mortgage rates that many of us were expecting isn’t going to be as quick as initially thought. The OBR has predicted that this Budget may raise inflation in the short term – 2.5% this year, rising to 2.6% next year, before falling back down to 2.3% in 2026 and 2.1% in 2027 and 2028.
This level of inflation is higher than many economists, including the Bank of England, were expecting for the next couple of years. Unfortunately, this could mean that mortgage rates fall slower than expected.
Our takeaway? This Budget that has been looming over us is finally over. We can put the speculation to bed and focus on navigating the market. While some of these policies will pose challenges for higher earners, the overall intention is to stabilise our economy and drive growth. With a stronger economy and a fall in inflation, we will eventually see the decrease in mortgage rates we’ve all been waiting for.
If you’re a first time buyer, a landlord, or a property investor and you’re still not sure what this budget means for you and your plans, give us a call on 023 8098 0304. As mortgage experts, we’re well-versed in riding out economic storms and can help you make informed decisions that make you feel more at ease.
