Housebuilder Highlights of Labour’s first budget

The eagerly awaited Autumn Budget, a frequent topic of conversation over recent weeks, has at last offered some certainty around the fiscal trajectory the UK government intends to follow. Rachel Reeves' first speech as the Country’s new Chancellor of the Exchequer on 8 July 2024 was focused on development with a particular emphasis on the housebuilding sector. It was therefore intriguing to see what she had in store for the housebuilding sector when she opened her dispatch box for her first autumn budget.

For housebuilders, the budget's offerings were modest. Noteworthy points included:

• Home Construction Goals:
  The Government reiterated its commitment to constructing 1.5 million new homes per year.
   
• Stamp Duty Changes:
  The Government announced that Higher Rates for Additional Dwellings of Stamp Duty Land Tax will increase from 3% to 5% effective from 31 October 2024.
   
• Mortgage Initiatives:
  The Government introduced plans to consult with the housing industry to consider making the mortgage guarantee scheme a permanent fixture, potentially aiding the growth in 95% loan-to-value lending.
   
• Funding for Affordable Housing:
  The Government allocated an additional £500 million to the Affordable Homes Programme, boosting the total housing supply investment to more than £5 billion.
  
  Further information on grant funding beyond the existing programme will be disclosed during the second phase of the Spending Review.
   
• Social Housing Adjustments:
  The Government has announced that the Right to Buy discount will be lowered to conserve the current housing stock, with local authorities keeping all proceeds from sales to reinvest in new social housing.
  
  A new five-year rent agreement for social housing is also under consultation, which will limit rent increases to CPI inflation plus 1%.
   
• Enhancements to Planning:
  The Government announced an additional £46 million will be directed towards recruiting 300 graduates and apprentices into local planning authorities to boost building efforts and that amendments to the National Policy Planning Framework (which were subject to consultation earlier this year) will take effect this year, to help meet housebuilding goals.
   
• Backing for Smaller Housebuilders:
  A new £3 billion support package has been announced by the Government for SME housebuilders and the Build to Rent sector through housing guarantee schemes, enabling developers to obtain loans at reduced costs to help facilitate the construction of new housing.   
   
• Safety Measures in Construction:
  The Government announced funding for cladding remediation will increase to over £1 billion by the fiscal year 2025-26.
   
• Corporation Tax:
  The Government committed to capping corporation tax at the current top rate of 25% for the remainder of the parliamentary term. 

Equally significant though were perhaps the omissions some in the sector had wanted to see from the Chancellor’s first Budget, such as:

• Stamp Duty:
  There was no mention of an extension to the First Time Buyers Relief which is due to revert back to £300,000 from the current level of £425,000 from 1 April 2025.
  
  The already announced reduction of the SDLT nil rate band from £250k to £125k with effect from 1 April 2025 was also unchanged.
   
• Help to Buy:
  There appears to be no sign of a revival of the Help to Buy Scheme, which many in the sector had hoped might be reintroduced.

Reacting to the Budget, the Office for Budget Responsibility increased its forecasts for both house prices and future mortgage rates (as compared against the Office for Budget Responsibility March predictions). An uplift in predicted values will be seen by most as a positive sign, but for some the predicted increase will again bring into sharp focus ongoing affordability concerns.   Those affordability concerns perhaps being elevated as the Government declined to use the budget to reintroduce the Help to Buy Scheme nor extend the First Time Buyers Relief or postpone the scheduled reduction of the residential SDLT nil rate band. The mortgage guarantee scheme, once explored with the housebuilder sector by the Government, could though offer respite to first time buyers and a pathway to home ownership. 

The 2% increase to the SDLT second home surcharge (which also always applies to corporate buyers of residential property, unless the even more punitive 17% flat rate applies, itself increased by 2%) exceeded Labour’s manifesto proposal (which detailed a 1% increase to the non-resident SDLT surcharge, whereas the announcement on 30 October applied to both UK and overseas residents). The second home SDLT surcharge alone (5% over the nil rate band and increasing incrementally within SDLT bands and subject even then to further increase for non-resident purchasers) means a UK property investor purchasing a small apartment of a value below £125,000 will pay equivalent SDLT as was payable on an over £1 million primary home when Alistair Darling reformed SDLT during the last Labour budget in 2010, being 5%.  This starkly highlights how much residential SDLT has increased over the past 14 years.

The new Agricultural Property Relief rules (with major changes effective from 6 April 2026) will take a while to be digested and only over time will we understand the market’s reaction.  There will inevitably be challenges ahead for farmers and landowners in terms of wealth, tax and succession planning that could potentially prompt sales.  Some commentators are though anticipating that the threat (or reality) of an increased Inheritance Tax bill could lead to more land being released for development. 

The cap on Corporation Tax provides the sector and the wider market with a degree of certainty not just to domestic corporates but also to any international entity holding UK real estate assets (given any offshore corporate structure holding UK real estate is within UK corporation tax). This should help support the present market confidence.

Over the coming weeks and months, we will come to understand fully the market’s view of the budget, as there are numerous factors at play following Rachel Reeves' first Budget.  Indeed, we may not have a clear sense of the road ahead until the housing market and housebuilding sector have seen the final output of the forthcoming reforms to the National Planning Policy Framework and has the certainty that the changes (such as the strengthening of the presumption in favour of sustainable development, the reintroduction of the 5-Year Housing Land Supply requirement, the introduction of the new standard method for assessing housing need, the addition of brownfield passports, the requirement to review green belt boundaries and launch of the Grey Belt) follow those on which the consultation concluded on 24 September 2024.