How might the Budget affect tenants, landlords, and the property market?

By: Phil Ainley

November 8, 2024

On 30 October 2024, the Chancellor of the Exchequer, Rachel Reeves, delivered her first Budget. It was a landmark moment in British political history, not only was it the first Labour Budget in 14 years but, more importantly, it was the first Budget delivered by a woman Chancellor in the UK.

Since 30 October, there have been countless general articles written about what was delivered in the Budget, and how it might affect UK residents and businesses. In fact, most people – who are interested – could’ve have guessed 95% of what was going to be in the Budget prior to its delivery date.

Here at Premier Estates we focus on the property sector and how the Budget could affect the property market as a whole, and possibly more importantly, how the Budget could affect the livelihood of residents and tenants.

Capital Gains Tax (CGT)

CGT is a tax on the profit you make when you sell – or dispose of – something that has increased in value. As such, people associate CGT with property, but this rule can be applied to any market sector where profits can be made.

Capital Gains Tax remained unchanged for residential property (18% or 24% depending on the property’s tax band). This was welcome news which may tempt more buyers into the market, especially those who had been waiting because they were expecting CGT to rise.

Economist calculating capital gains tax CGT

Stamp Duty Land Tax (SDLT)

The additional rate of stamp duty was raised from 3% to 5% for second homes, which hadn’t been highlighted by the media or the Labour Party manifesto. This raises the top rate of stamp duty to 19%, however non-residential and mixed-use rates remain unchanged.

This move was billed as a measure to help first-time buyers, but it could, have unintended consequences for renters. If it disincentivises landlords further, then it could reduce supply of rental properties and push up rents. Let’s hope that isn’t the case.

However, if you are a first-time buyer, then you could expect to have to pay more when you purchase a home. This is due to the nil-rate band for stamp duty reverting back to £125,0000 from £250,0000 in April 2025. This will mean stamp duty bills will rise by up to £2,500. This could mean first-time buyers having to pay up to £6,250 in additional stamp duty, which could make the first quarter of 2025 a very busy period for conveyancers.

This hike in costs could also mean more people staying in the rental sector as they look to save more money before they make the decision to buy.

Affordable Housing Programme (AHP)

There was great residential development focus on affordable housing in the Budget.

The government announced its support for the delivery of 5,000 additional affordable homes by increasing the Affordable Housing Programme (AHP) by £500 million. This extra support comes at a time when housing associations have cut back on developments to focus on commitments to remediate existing stock.

However, an increase in grant funding beyond the end of the current AHP in 2026 is required to deliver the number of affordable homes required across the country.

The government has also proposed a five-year rent settlement for social landlords, with the intention to increase rents in line with the Consumer Prices Index (CPI) plus 1%.

This will provide transparency for tenants and a better level of certainty for social housing providers. However, it needs to be viewed in the context of the ongoing financial pressures faced by social housing providers, including: high inflation, higher borrowing costs, difficulties accessing skilled labour, and a declining housing market. All of which can contrive to reduce incomes and increase outgoings.

Housing Shortage

The government has made it clear that it intends to tackle the housing shortage, especially with its ambitious target of 1.5 million homes.

Over £50 million has been set aside to better resource planning departments and unblock large sites that are stuck in the system. An additional £47 million has been earmarked to free up homes that have stalled due to nutrient neutrality.

“Nutrient neutrality means that a new residential development will not cause increased nutrient pollution to specific protected sites. Developers must use nutrient budget calculations to show that their proposals will not bring about a net increase in nutrient pollution to specific habitats sites. Some local planning authorities also have their own nutrient neutrality calculators which can be used.” https://www.gov.uk/

Yet, if there is no support for first-time buyers – which was absent from the Budget – then selling all these new homes could be a challenge.

Interest Rates

The Office for Budget Responsibility (OBR) commented that interest rates are likely to remain higher due to higher than anticipated inflation. Higher interest rates will mean higher mortgage rates. Combine this with the increase in stamp duty and the pressure on homeowners and potential buyers significantly increases from an affordability perspective.

Income Tax and National Insurance Contributions (NICs)

Rates of income tax and National Insurance for employees remained unchanged in the Budget. Income tax band thresholds are set to rise in line with inflation after 2028. This will help preventing more people finding themselves in higher tax bands if their wages rise.

However, the rate of Employers National Insurance Contributions increased.

Companies will have to pay NIC at 15% on salaries above £5,000 from April 2025, which is up from 13.8% on salaries above £9,100. It is estimated that this will raise an additional £25bn a year for the treasury.

This increase to Employers National Insurance will likely put a huge strain on many employers across the UK which could affect many employees indirectly. It could mean people being let-go by their employer as they look to reduce costs, reduced recruitment because less jobs will be made available, and even reduced chances of being awarded a pay rise.

What’s more, the increased burden on businesses will likely increase prices to the consumer.

It will also result in higher service charges at developments with on-site staff where all employment costs are met by the service charge payers.

Small business employer discussing national insurance contributions with accountant

Wages and Benefits

Beginning in April 2025, employers across the UK will be required to pay higher minimum wages. The National Living Wage for employees aged 21 and over will increase from £11.44 to £12.21 per hour.

For those aged 18 to 20, the National Minimum Wage will rise from £8.60 to £10 per hour, while the minimum wage for 16–17-year-olds will go up from £6.40 to £7.55 per hour. Additionally, the apprentice rate for eligible apprentices under 19, or those over 19 in their first year, will also increase from £6.40 to £7.55 per hour.

For employees this is welcome, but for employers it could be additional strain on finances – on top of the NIC increase – that are already under pressure.

Woman calculating her bills and budget based on her wages and benefits

Budget impact on land prices and acquisition

It is expected that the Budget will have an indirect impact on land values because of measures that are in place to encourage increased density in urban areas and the reuse of under-utilised land.

The government has introduced incentives for brownfield and grey belt site developments. It is hoped that this will make the redevelopment of existing sites more attractive, rather than developers looking to build on greenfield areas.

With the increased focus on affordable and sustainable housing, there could be more pressure on land prices in high-demand areas.

Developers may benefit from focusing on urban redevelopment projects where financial incentives for sustainable projects and urban density could keep land acquisition costs competitive.

Despite the support measures there is still uncertainty over the economy. Inflation and higher interest rates are likely to keep borrowing costs high, which could pose financial headaches for smaller developers who are reliant on leveraged funding.

Overall, when it comes down to acquisition, investment, and development, investors are likely to adopt a cautious approach, focusing on assets that offer stable returns which are less sensitive to economic fluctuations.

Premier Estates Ltd provide award-wining property management services across the UK. If you would like to speak to one of our team about managing your property portfolio, please call 0345 491 8899.