October 2024 Budget: Implications for Buy-to-Let and First-Time Buyers in the UK
In the recent October 2024 Budget, the Labour government introduced several changes aimed at addressing housing issues, particularly around affordability and supply shortages. With new adjustments to stamp duty, tax policies, and funding for affordable housing, the landscape for buy-to-let (BTL) investors and first-time buyers (FTBs) has shifted significantly. Let’s explore what these changes mean.
Changes to Stamp Duty and Capital Gains Tax
Increased Stamp Duty on Second Homes
One of the key Budget changes, but surprisingly not one covered in the mainstream press with any significance, is the unexpected rise in stamp duty for second homes, this most notably affects BTL property in either a limited company or personal name. Effective immediately, the stamp duty rate on second properties will increase from 3% to 5%, taking the top rate up to 19%.
For a second property worth £300,000, the stamp duty bill would rise from £11,500 to £17,500. This is not going to be well received and the immediate application of this might be frustrating. That said, any other time there has been a change in stamp duty with a number of months notice, the market is skewed with vendors looking to offload prior to the switch and buyers paying over the odds to secure property early. The services involved, solicitors and lenders, get clogged and frustrations rise with some missing out through no fault of their own.
No Change in Capital Gains Tax (CGT) for Residential Properties
CGT rates for residential property remained untouched. This stability is expected to sustain interest in the BTL market, as potential sellers aren’t pressured to offload properties due to higher CGT rates. This will be a welcome relief for many.
Future Higher Costs with Stamp Duty Band Reversion
After 31 March 2025 the nil-rate band for first time buyers will also change. The initial threshold will revert to £300,000 from £425,000 with further relief reducing from £625,000 to £500,000 in London.
Currently many calculators are being updated with the changes above, however the following link shows the correct values: Stamp Duty Calculator – Latest Updated Stamp Duty Calculations
Other Relevant Changes
Government’s Affordable Housing Focus
To address housing affordability, the Budget increased the Affordable Housing Programme (AHP) by £500 million, aiming to add 5,000 affordable homes. The move shows a commitment to balancing housing supply, though more substantial funding will be needed post-2026 to meet demand fully. For those buying properties in areas likely to benefit from new affordable housing projects, market pressures on house prices could ease slightly. However, the increased affordable housing funding will take time to impact the broader market.
Supply-Side Measures: Planning Department Support and Nutrient Neutrality
The Budget dedicates over £50 million to planning departments, aiming to expedite large-site approvals. Additionally, £47 million will go towards resolving nutrient neutrality issues, unblocking delayed housing projects. These steps could help speed up housing supply in regions facing bottlenecks. For both FTBs and BTL investors, a more responsive planning system might mean new developments enter the market sooner, creating a wider range of property options over time.
Support for SMEs and Build-to-Rent (BTR) Sectors
The Budget also earmarked £3 billion to support SMEs and the BTR sector, with £2 billion allocated to the PRS Debt Guarantee Fund and £1 billion to the ENABLE Guarantee program. This financing aims to boost the BTR sector and increase rental housing supply. BTR has potential benefits for both FTBs and renters by easing some housing supply constraints in densely populated areas. If implemented effectively, these measures could reduce pressure on the rental market, indirectly helping FTBs by lowering rental costs, enabling them to save more towards home ownership.
A Missed Opportunity for Demand-Side Support for FTBs
While the Budget’s supply-focused initiatives are positive, the absence of demand-side measures for FTBs is notable. Practical policies like targeted stamp duty reliefs or shared ownership incentives would have gone further to address the financial challenges FTBs face.
Conclusion
The October 2024 Budget presents a mixed bag for the residential property market. For BTL investors, the higher stamp duty on second properties and stability in CGT rates are a double edged sword. Meanwhile, FTBs will encounter increased costs due to changes in the nil-rate band, though they may indirectly benefit from the government’s supply-focused measures in the long run.
