what the Budget means for the property market

Just eight weeks after Kwasi Kwarteng dished out a raft of cuts in his ill-fated mini-Budget, his successor, Jeremy Hunt, introduced a series of tax rises and spending cuts. Stressing a focus on ‘stability, growth and public services’, the Chancellor warned that high inflation is the ‘enemy of stability’.

The Office for Budget Responsibility’s latest forecasts show that the UK is in recession, with inflation expected to end the year at 9.1 per cent and 7.4 per cent next year, compared with the Bank of England’s benchmark of 2 per cent. But what do the latest measures mean for the housing market?

stamp duty time-limit

The Chancellor announced that he would phase out the cuts to stamp duty which Kwarteng announced would be permanent, by 31 March 2025, effectively putting a two-year time-limit on the measure. He said that the OBR expects housing activity to slow over the next couple of years, so the measures would remain in place as an incentive to support the housing market by boosting transactions during a period when the economy most needs it.

Indeed, the OBR said it expected house prices to fall by 9 per cent between the fourth quarter of this year and the third quarter of 2024 as higher mortgage rates stretch affordability for buyers and mean they can’t get bigger mortgages, curtailing the price they are able to pay. While homeowners will not be pleased to hear about price falls, given that Halifax says average property prices have risen by 8.3 per cent in the year to October, such a drop needs to be put into perspective.

It is welcome news that the Government is maintaining the stamp duty reduction for now, in the hope that banks can also be more flexible when it comes to mortgages. This will enable the housing market to continue to perform, along with associated businesses within the sector, which is so important for the wider economy.

Kwarteng had doubled the threshold at which stamp duty is paid to £250,000, while first-time buyers are also exempt on paying the first £425,000 of their purchase as long as the overall property price is below £625,000, rather than the previous £300,000. From April 2025, the nil-rate threshold and first-time buyer exemptions will go back to what they were before Kwarteng’s Budget. By that time, the economy should hopefully be in a much better place, particularly as long-term interest rates should be lower as inflation is brought under control.

capital gains tax changes

This was an area for further changes in order ‘to restore public finances and make the tax system fairer’, with the tax-free allowance for capital gains tax (CGT) reducing from £12,3000 to £6,000 in 2023/24 and again to £3,000 in 2024 /25. This will impact landlords and second homeowners selling residential property. However, there are fears that the rate at which it is paid – 28 per cent for higher-rate taxpayers – would increase, so there is a feeling that the outcome was not as bad as it might have been.

other measures

Substantial tax increases were announced, including reducing the threshold at which the 45p rate is paid from £150,000 to £125,000, while the tax-free dividend allowance will be reduced to £1,000 in 2023/24 and then to £500 in 2024/25. The Chancellor extended the freeze to the nil-rate band for inheritance tax from 2025/26 to 2027/28. He also announced that owners of electric vehicles will have to pay road tax from 2025/26, while the energy price guarantee would continue after 31 March 2023 (when it had been scheduled to end) for another 12 months but at a higher level of £3,000 for the average household.

our verdict

Higher taxes, combined with continued increases in interest rates and the cost of living, will undoubtedly cause concern for households as to how they will cope over the next couple of years.

However, while the bad news seems to keep on coming, the long-term outlook should be brighter on the other side of the recession as consumers look to manage their outgoings. Indeed, as far as mortgages are concerned, fixed rates have already started to fall after spiking following the mini-Budget, with five-year fixed rates now back below 5 per cent.

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