Chancellor Rachel Reeves' Budget:
Key Concerns for the UK Mortgage Market and Property Sector

Chancellor Rachel Reeves' Budget: Key Concerns for the UK Mortgage Market and Property Sector

As Chancellor Rachel Reeves prepares to deliver her first Budget on 30 October 2024, speculation is mounting within the UK mortgage and property sectors about potential tax changes. Central to these concerns are anticipated increases in Capital Gains Tax (CGT) and shifts in business taxation, which are generating uncertainty for property investors and businesses alike.

Housing Market Concerns

James Dickens, managing director of Wavensmere Homes, has voiced apprehension over potential increases in CGT, with fears that rates could soon align more closely with Income Tax bands. While initial signs suggest that second homes and buy-to-let properties might avoid these hikes, the broader anxiety around a more aggressive tax regime has already led to a spike in rental properties being listed for sale. This trend comes at a time when rental demand is exceptionally high, raising concerns that the sell-off of rental properties could worsen the housing shortage and make it even more difficult for first-time buyers to step onto the property ladder.

Challenges in Council Housing and Property Development

Angela Rayner’s £1bn council housing initiative has been welcomed by large-scale property developers, but the construction sector continues to face significant obstacles. According to Dickens, the government’s goal of building 300,000 homes per year is unlikely to be met, with the industry hampered by prolonged delays in the planning process and the rising costs of complying with new environmental standards, such as the Future Homes Standard. These persistent challenges are slowing the delivery of new homes, exacerbating the existing supply crisis in the UK housing market.

Inflation, Interest Rates, and Mortgage Affordability

Despite UK inflation falling to 1.7%, mortgage holders remain under pressure due to elevated interest rates. Many are calling for the Bank of England to introduce more substantial cuts to the Base Rate to ease the financial burden on homeowners. While a quarter-point cut is anticipated, some argue that bolder action is necessary to alleviate mortgage repayment costs. Compounding the issue, the temporary Stamp Duty exemption is set to expire in March 2025, leaving first-time buyers at risk of further affordability challenges unless new government measures are introduced to provide additional support.

As Budget day approaches, the housing market is keenly watching Reeves’ decisions, particularly those affecting affordability for homebuyers and property investors. How her policies unfold will have significant implications for the housing market and the wider economy.