Chancellor Rachel Reeves has introduced significant changes in the Autumn Budget 2024, aimed at reshaping the housing landscape by increasing stamp duty for second homes and implementing measures designed to assist first-time buyers.

Key Changes for Second Homes and Investment Properties

One of the most notable changes is the rise in the stamp duty surcharge on second homes and investment properties, which has increased from 3% to 5%, effective immediately. This measure aims to deter speculative purchases and make more homes available for those seeking their primary residence. “Our commitment to reforming stamp duty land tax is about raising revenue while supporting first-time homebuyers,” Reeves stated. This new policy is expected to facilitate over 130,000 additional transactions for first-time buyers in the next five years.

However, the mortgage sector has expressed concerns about the impact of this increase. Ross Turrell, Commercial Director of CHL Mortgages, advised a cautious approach, highlighting the buy-to-let market’s adaptability in the face of regulatory changes. “While this policy may present challenges, the resilience of the market has been proven repeatedly,” Turrell noted, urging industry stakeholders to focus on collaboration and borrower education to help landlords adapt.

Richard Donnell, Head of Research at Zoopla, weighed in on the situation, suggesting that the new surcharge will likely lead to decreased interest from investors and second-home buyers. He pointed out a recent uptick in property listings in high-demand areas, which he attributes to earlier measures allowing councils to impose higher council taxes on second homes. “This trend may continue, especially in London, where the already high property prices create significant affordability challenges for local residents,” said Donnell.

New Support for First-Time Buyers

The Budget also provides crucial support for first-time buyers, despite no expansion of the lower stamp duty threshold. Starting in April 2025, first-time buyers in London and the South East will face increased stamp duty costs, averaging an additional £5,600 and £1,390, respectively. Properties in London valued over £600,000 could incur an extra cost of up to £15,000. Donnell predicts that many buyers may negotiate lower property prices to offset these rising costs, potentially stabilising the housing market in these expensive areas.

Challenges in the Private Rental Sector

The increase in stamp duty on second homes has sparked criticism from the rental housing sector. Angharad Truman, President of ARLA Propertymark, pointed out the ongoing shortage of rental properties amidst rising tenant demand. She warned that higher stamp duties could drive some landlords out of the market. “The private rental sector plays a vital role, housing over 4.6 million families in England,” Truman emphasised. “It’s crucial for the government to support landlords rather than burden them with increasing costs and regulations.”

Right to Buy Revisions and Social Housing Initiatives

In a significant policy shift, Reeves announced a reduction in discounts available under the Right to Buy scheme. This change will allow local councils to keep the funds from home sales, helping to finance new social housing developments. The government plans to invest £500 million to construct 5,000 new social homes and will consult on adjusting social rents to provide long-term financial stability for housing providers. “Our goal is to enhance the supply of affordable housing by reinvesting in existing stock and implementing policies that ensure safe and secure living conditions for more people,” Reeves stated.

Critics like Ryan Etchells, Chief Commercial Officer at Together, have voiced concerns that lowering the Right to Buy discount will make homeownership out of reach for many council tenants who had hoped to buy their homes. Housing charity Shelter has similarly cautioned that increasing the stock of social homes without reforming Right to Buy is ineffective, comparing it to “running a bath without putting in the plug.”

Broader Budget Implications for Households

The Autumn Budget also includes measures affecting various aspects of everyday life:

• Minimum Wage Increase: In April, wages for low-paid workers will rise, but employers warn that the increased wage costs, alongside higher National Insurance contributions, could impact hiring.
• Bus Fare Increase: The cap on single bus fares will rise from £2 to £3 by 2025.
• Taxes on Vaping and Tobacco: A new flat-rate duty will be imposed on all vaping liquids starting in October 2026, and tobacco taxes will rise immediately.
• Private School Fees: A 20% VAT will be applied to private school fees beginning January 2025.
• Benefits Increase: Benefits will rise by 1.7% in line with inflation, while state pensions will increase by 4.1% in April to keep pace with wage growth.

The Resolution Foundation, a think tank, notes that while the Budget promises long-term public investment, families may face immediate pressures from rising living costs and increased taxes. “Although the Budget aims to strengthen public services, families are bracing for a further squeeze on their living standards as wage growth slows,” stated Mike Brewer, the Foundation’s interim Chief Executive.

Partner with Mortgage Tek

As these significant changes unfold, Mortgage Tek is committed to helping clients navigate the new housing landscape. Whether you’re a first-time buyer or an investor, our experienced team is ready to guide you through your mortgage options and provide you with the necessary tools for informed decision-making. With the right support, you can confidently pursue your goals in homeownership or investment. Let us assist you in realising your housing dreams.