ENFIELD, ENGLAND - JUNE 26: An aerial view of residential properties are pictured on June 26, 2023 in Enfield, England. According to data from the Financial Conduct Authority (FCA), borrowers in the London Borough of Enfield have the biggest mortgages relative to their income in the UK. With nearly two thirds borrowing at least four times their household income, leaving them likely to be affected by significant rises in monthly payments as interest rates continue to rise to counter stubborn inflation. (Photo by Carl Court/Getty Images) The changes to stamp duty — often dubbed the UK’s most unpopular tax — may create a rush of buyers seeking to beat the deadline, followed by a lull, according to a Bloomberg Intelligence report. The 2 percentage-point hike to second home purchases will reduce demand from investors and will impact London and southeast England the most, said Richard Donnell, head of research at Zoopla Ltd., a property portal.
The increase is likely to have a ripple effect on the UK housing market, dragging more residents into paying levies at a time when the Labour Party is pledging to build 1.5 million homes over five years and get more people on the housing ladder. Britons are already struggling with higher mortgage rates and a cost-of-living squeeze, causing a slump in home deals over the past two years.
A return to higher stamp duty bills from April means home buyers will pay 2% on the portion of the property value between £125,001 and £250,000, and first-time buyers will only be able to claim relief on homes with a maximum value of £300,000.
Rental Market
It will have an impact on the rental market as well, said Lucian Cook, head of residential research at property broker Savills Plc.
“The risk is that it further constrains the supply of private rented accommodation, keeping upward pressure on rents,” Cook said. “New buy-to-let investors will be very thin on the ground, and even existing larger, wealthier, landlords, will think very carefully about whether they continue investing.”
Read more: Labor Shortage to Thwart UK’s 1.5 Million Homes Goal, RBC Warns
Shares of homebuilders including Barratt Redrow Plc, Vistry Group Plc, Taylor Wimpey Plc and Persimmon Plc pared most of the early gains they saw immediately after Reeves’ speech, mirroring gyrations in gilts.
In her budget speech, Reeves also said she will reform inheritance tax on agricultural and business property so that assets over £1 million will be subject to an effective tax rate of 50% starting April 2026. Still, the chancellor pledged to keep the £325,000 threshold in which inheritance tax is payable until at least 2030, and did not raise the headline rate from the current 40% despite fears of a hike.
Still, landlords were spared another blow after years of surging costs, as a highly speculated increase to the capital gains tax charged for higher-rate taxpayers selling a second home was not included in the budget. Former Chancellor Jeremy Hunt reduced the higher rate to 24% from 28% earlier this year in a bid to encourage existing holiday home owners to sell, freeing up more stock for local buyers.
Little Effect
Measures already announced by Labour to help first-time buyers — such as mortgage guarantees for prospective owners unable to save for a large deposit — may have little effect, with rate cuts more likely to offer greater relief, according to BI. What’s more, analysts have warned that government plans to ban no-fault evictions and tighten green requirements in the lettings market could make matters worse for cash-strapped tenants as landlords are forced to raise costs or sell up.
Read more: Labour Bid to Help UK Renters Risks Backfiring, Analysts Say
Reeves, the first female chancellor to deliver a budget, committed £3 billion to boost the supply of homes and support small developers, while vowing to boost the availability of affordable housing. The chancellor also committed to reducing so-called “Right-to-Buy” discounts for Britons who purchase their council house with the aim of reinvesting the extra money into housing delivery, as well as ensuring above inflation social housing remits for the next five years to encourage development.
The budget broadly revealed tens of billions of pounds worth of tax hikes and spending cuts in her fiscal plan. Reeves wants to use the funds to cover a £22 billion shortfall she said she inherited from the previous Conservative administration, while also spending more on the National Health Service and ensuring no government department faces real-terms cuts to their funding.
In a blow to the ultra-rich, Reeves confirmed plans to abolish the non-doms tax regime, instead introducing a new plan based on residency. Speculation about the proposal had already spooked many non-doms, prompting some of them to finalize or even carry out plans to leave Britain.