Stamp duty for second home and buy-to-let (BTL) purchases rose by 2 percentage points to 5%, while capital gains tax (CGT) increased for the disposal of assets, excluding residential property investments, which will be taxed at the same rate.
A sum of £5bn was pledged to the housing market while the non-dom tax regime was scrapped, a move expected to impact foreign investment in the UK’s high-end property markets.
Now that the Chancellor has finally shown her hand, what does the mortgage and housing market think of the announcements?
Here’s how the industry reacted.
Stamp duty surcharge hike to 5%
Alternative Bridging suggests this will be a more welcome change for property investors than a CGT hike, adding that the Budget announcement signals a period of greater certainty ahead.
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Jonathan Rubins, director and chief commercial officer, said: “The stamp duty surcharge on additional dwellings may have increased but CGT rates on residential property have remained the same.
“Whereas CGT exposure is unknown at the outset of a property investment – depending on capital appreciation – stamp duty is more straightforward, and the additional cost can sometimes be mitigated by negotiating a lower price. This Budget sets a clear benchmark for property investors, offering them greater clarity and stability regarding the future taxation framework.”
Jonathan Stinton, head of intermediary relationships at Coventry Building Society, feared renters would ultimately pay the price.
“The bill on average priced property will shoot up over £6,000 overnight. Immediately hiking the stamp duty surcharge to 5% is disincentivising any further investment from current and would-be landlords. It’s a significant blow to the sector and, without dramatic housebuilding to improve supply, it could lead to a shortage of rental homes, and push rents up,” he said.
Changes to inheritance tax
Rachael Griffin, tax and financial planning expert at Quilter, said: “The decision to continue the freeze on the IHT nil-rate band (NRB) at £325,000 will pull many more estates, which many would consider relatively modest, into the inheritance tax net.
“The NRB has been frozen since 2009, and if it had risen in line with inflation, it should now be £503,879. Freezing this until 2030 will make this threshold even more antiquated. We are already seeing record-breaking IHT receipts, and this change will compound this.
“Given just yesterday Rightmove reported that the average new seller asking price is now £371,958, this could automatically make £46,958 of someone’s home taxable if they are not entitled to use the complex residence nil-rate band.”
Griffin says this shift could have far-reaching financial consequences for families who rely on inheritance to maintain financial security, such as paying off mortgages.
Nick Leeming, chair of estate agency Jackson-Stops, said: “We welcome the Government’s recognition of the critical role of the ‘Bank of Mum and Dad’ in helping younger generations onto the housing ladder through the extension of the frozen inheritance tax threshold to 2030.
“With increased tax burdens potentially limiting the ability of families to support their children in homeownership, the Government must continue to consider how it can best support prospective homeowners through meaningful housing strategy.”
£5bn push for housebuilding
Lee Williams, national sales manager at Saffron for Intermediaries, said: “Smaller builders are getting some much-needed support with £3bn of support for SMEs and the Build to Rent sector. Yet, with housing only briefly touched on, you have to wonder if these steps will be enough to hit that ambitious 1.5 million homes goal or make housing truly affordable.
“It is, however, encouraging to hear that the Government will debate making the mortgage guarantee scheme a permanent fixture with industry in the coming months.
“To make real progress on affordability, though, we’d love to see the Government lean into initiatives that back higher loan-to-income lending.”
National Insurance increase for employers
Chris Sykes, technical director at Private Finance, said: “We estimate that the increase in National Insurance contributions could cost employers an additional £865 per employee per year.
“This might affect employee bonuses, performance-related pay, and disposable income across the nation, potentially impacting mortgage affordability. Alongside recent employment legislation, these changes could influence employers’ decisions regarding workforce size, which may align with Government intentions to expand labour supply. To put this in perspective, £865 could cover the interest on approximately £21,625 of a mortgage at a 4% interest rate.
“For higher-income earners, employees earning £100,000 annually, employers’ National Insurance contributions could rise by circa £1,700 per year, potentially affecting performance-related pay, which in turn could impact mortgage affordability.”
Pete Mugleston, managing director and mortgage expert at www.onlinemortgageadvisor.co.uk, said: “The rise in employer’s National Insurance contributions could slow down job creation in the construction sector, which might impact housing supply. Plus, with income tax and NI thresholds frozen, more homeowners could find themselves paying higher taxes as their wages increase, leaving less money for savings or new home purchases.”
Impact of higher taxes on equity release borrowers
Simon Webb, managing director of capital markets and LiveMore, said: “For those nearing or in retirement, the adjustments to stamp duty and capital gains tax will add an extra layer of consideration when planning for later-life financial stability.
“These changes may lead many older borrowers to rethink their property investments or inheritance strategies, especially with additional financial pressures on second homes and buy-to-let properties.
“Lenders now have a responsibility to offer clear, bespoke guidance to help this demographic navigate the new fiscal landscape.”
This article was first published on YourMoney.com‘s sister site, Mortgage Solutions. Read: Autumn Budget 2024: What it means for the mortgage and housing market – industry reacts
