"With house prices rising, many more buyers will end up with a stamp duty bill, or face paying even more. In what has been a very slow and fragile recovery, this change is unwelcome and potentially damaging."
Throughout the general election and since taking office, we’ve heard the new Labour government talk of its aims to ‘get Britain building again’. However, the Autumn Statement has thrown into question whether or not homeownership has actually been made more accessible. While, in essence, the government’s long-term aim is to build a robust economic plan that accounts for prospective and current homebuyers, the reality (and subsequent impact) is altogether quite different, leaving much to be desired.
More affordable housing
Firstly, let’s focus on the positives. The government promised to increase the supply and funding for affordable housing, having pledged over £5 billion to support the initiative to deliver 33,000 new homes, boost housing supply, and support small homebuilders. They’ve also promised to deliver on their manifesto pledge to hire hundreds of new planning officers. This will not only help to speed up the building process, but also combat the risks of stalls and delays during these projects.
An increased investment in affordable homes programmes has also been proposed, which would see more than £3 billion in support of guarantees, as well as investments to renovate sites across the country. To achieve this, the government will reduce the discounts on Right to Buy, so more council homes remain available.
Moreover, the additional £500 million funding allocated to the Affordable Homes Programme could help to stimulate demand for new build properties, especially among first-time buyers and low-income households. However, as a consequence, this may be offset by higher corporation tax and employers’ contributions to national insurance.
Stamp duty hikes
The additional Stamp Duty Land Tax levy on second properties has been increased from 3% to 5% of the property’s value, impacting second homeowners and landlords. Tax relief for first-time buyers has also not been extended, meaning they will have to pay stamp duty on the property’s value above £125,000 (dropping down from £250,000).
The Treasury insisted that the move to increase the duty for second homebuyers and owners would provide first-time buyers and those looking to move house a “comparative advantage over second home buyers, landlords, and businesses purchasing residential property”. This is because it’s now expected that fewer second-homers and landlords will find it financially attractive to add to their portfolios, leaving more choice and availability for first-time buyers, and thereby helping to address a supply and demand imbalance in this part of the market. Some may even choose to reduce their portfolio sizes now, fearing future increases in the relevant level of Capital Gains Tax, thereby contributing also to an increase in new housing stock for sale.
However, not extending the current uplifted threshold for stamp duty leaves the Chancellor at risk of undoing all the good work done over the last year. Some aspiring first-time buyers may simply choose not to move for a while, and continue to be stuck renting with all the uncertainty that this brings.
In fact, with house prices rising, many more buyers will end up with a stamp duty bill, or face paying even more. In what has been a very slow and fragile recovery, this change is unwelcome and potentially damaging. The reduction in stamp duty thresholds from April 2025 will make homeownership more expensive for many buyers, particularly in areas with higher property prices. This could seriously dampen demand and potentially lead to a slowdown in house price growth.
Lack of EPC reform
The Chancellor had an opportunity to enact real change in the retrofitting space, using stamp duty as an incentive for homeowners to make their properties more energy efficient. However, the lack of reform is a disappointing blow that leaves both the responsibility and the bill firmly in the laps of homeowners. If the UK is to meet its climate commitments, it’s critical that this isn’t the end of the story. An energy efficient housing market builds a resilient economy, stimulates further investment, reduces fossil fuel reliance, and creates jobs. However, the fact this has yet to be recognised means that current targets are straying even more out of reach than usual.
Despite the previous UK government setting a goal to ensure that most homes achieve an Energy Performance Certificate (EPC) rating of C or above by 2035, 60% of our housing stock remains below this standard. This means that around 16m properties in England and Wales will require retrofitting to meet the EPC benchmark.
Our recent research showed that 61% of prospective buyers said they would be more likely to make an offer on a property with a higher (above C) EPC. This demonstrates that the appetite is there, but we need the framework in place to give homeowners the opportunity to make retrofitting more financially viable. Stamp duty reform would have been a crucial move in the right direction, supporting homebuyers, improving the decarbonisation of UK housing stock, and helping the government meet its net zero targets.
Recently, we at Mortgage Advice Bureau led a group of like-minded lenders and brokers in writing to the Chancellor to express our concerns at the pace of progress towards decarbonisation of the UK’s housing stock. This is just the start of our ongoing conversations as to how we can continue to enact meaningful change in the green space. For one, our Resilient Homes proposition will support customers in accessing affordable retrofitting solutions, no matter what stage of the homebuying journey they’re at.
Where does this leave mortgage rates?
While we cannot deny that measures announced in the Autumn Budget should ultimately boost economic growth and combat inflation, it leaves those due to refinance to feel the pinch. With inflation having recently risen, and the Bank of England signalling its restraint in cutting interest rates further, it’s possible that mortgage rates could stay higher for longer.
Recent events, like the budget and US election, have shifted the economic outlook, pushing up swap rates, leading to higher mortgage rates and a potential reduction of buyers’ purchasing power.
However, some perspective is needed here. These inflation increases will prove temporary, and as wage pressures continue to ease, we can probably expect interest rates to fall - albeit gradually - as we head into 2025. Ultimately, we’re nowhere near the highest levels of inflation and mortgage rates seen in the past two years, and the onus is on us as advisers to reassure our customers that options are available to them, despite a somewhat lacklustre Budget.
How can we support our customers in the post-Budget landscape?
When navigating the current climate of higher rates and tighter affordability, the lasting advice to impart to customers is that if they’re intending to purchase or move any time before April 1st, 2025, when stamp duty thresholds are reduced, time is of the essence. Waiting for rates to drop further could be risky and trying to plan ahead and ‘time the market’ may not pay off in the short to medium-term. Notwithstanding these stamp duty changes, now is as good a time as any to encourage them to commit if they are ready to do so.
We must proactively inform customers about the potential implications of the budget on interest rates, mortgage affordability, and overall financial goals, as this will arm them with all the information they need to take those all-important next steps. The market is stable for the time being, and while rates aren’t coming down as quickly as once hoped for, they’re still on a downward decline. This is the new normal, and the sooner we educate customers on this, the more they will be willing to make important decisions and commit.
