The first Labour government budget in almost 15 years has sparked conversations about the future of the UK housing market, particularly for first-time buyers. Chancellor Rachel Reeves’ budget, delivered amid ongoing cost-of-living pressures, has introduced a host of policies focused on increasing the supply of housing. This could offer some good news for those looking to take their first step onto the property ladder.
On Yahoo Finance Future Focus, Mortgage Advice Bureau (MAB) deputy CEO Ben Thompson discussed the potential benefits of the budget for first-time buyers and how it might alleviate some of the difficulties renters face in becoming homeowners. With the housing market under pressure from high mortgage rates and house prices that remain steep despite recent stability, the UK budget could provide the right incentives for reluctant renters to make the leap.
One of the key elements of the UK budget was the decision to increase the stamp duty surcharge for second homes and buy-to-let properties. The surcharge will rise from 3% to 5% from October 2024, making it more expensive for investors and landlords to purchase additional properties. According to Thompson, this shift could help ease competition for first-time buyers, who may find themselves at a disadvantage in a market dominated by property investors.
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“So it’s now very expensive to buy a second home. What that actually means is they’re potentially bringing more supply in for first-time buyers, because you’ll have fewer people buying homes to invest and as holiday homes, and that’s really good for the first-time buyer,” he said.
This stamp duty increase should dissuade many second-home buyers from entering the market, leading to fewer second homes and holiday lets. “This means fewer people competing for the same pool of properties, which is beneficial for first-time buyers,” Thompson added.
Additionally, the government’s proposed £5 billion investment in new housing, with £500 million allocated to the Affordable Homes Programme, could further expand housing supply in the longer term. Thompson sees this as a significant boost for first-time buyers, creating more opportunities for them to find affordable homes in an otherwise competitive market.
However, the budget did not extend stamp duty relief for first-time buyers, which is due to end in March 2025. The threshold at which first-time buyers no longer pay stamp duty is set to fall from £425,000 to £300,000, a change that could impact many who are looking to purchase their first home, especially in the south-east of the UK. Thompson acknowledged that this could create a rush of first-time buyers trying to secure a property before the relief ends.
Despite this, he suggested that the government’s broader focus on increasing housing supply might mitigate the impact of the reduced stamp duty threshold, as a greater number of properties come onto the market.
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“We might see more homes available, and while first-time buyers could face some extra costs, the overall increase in housing stock could balance things out,” he noted.
The budget also confirmed that capital gains tax (CGT) rates on residential property would remain unchanged. This provided a degree of stability for landlords, who had been concerned about potential tax hikes. However, Thompson pointed out that the lack of change could prompt some landlords to sell up while the tax rates are still relatively favourable, potentially adding more properties to the market.
“At the moment, the government haven’t been overly penal on capital gains tax in the recent budget. What they might be saying is, we’ve increased capital gains tax everywhere else, so, pretty much if you want to sell, or if you’re thinking about selling as a landlord, notwithstanding the fact that you play a really important part in the housing market, you might want to sell now, because capital gains tax might go up next year or the year after. So, if landlords do dispose, then that is also helpful for first-time buyers,” Thompson explained.
While the budget has focused on increasing housing supply and supporting first-time buyers, Thompson highlighted a missed opportunity to directly assist “reluctant renters” — those who are stuck in long-term rental agreements and unable to save for a deposit. He said the government could have introduced a more streamlined process where tenants could purchase the properties they have been renting for years, making the transition from renting to ownership smoother.
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“One potential avenue the government could explore is making it easier for tenants to buy from landlords. If a tenant has been living in a property for several years and has consistently paid their rent and bills, they have a proven track record of affordability,” Thompson explained. He proposed that the government could incentivise landlords to sell to long-term tenants by offering tax relief on capital gains or by making it easier for tenants to secure low-deposit mortgages.
This idea, Thompson argued, could bridge the gap between renting and owning for many first-time buyers who may struggle to save for a deposit or navigate the complexities of the housing market.
The overarching theme of the budget seems to be a shift from demand-side interventions such as Help to Buy, to policies that focus on increasing the supply of housing. This, according to Thompson, is a necessary adjustment, given the challenges faced by first-time buyers in today’s market. The increased focus on building new homes — especially affordable housing — could provide the long-term solution to housing shortages that have plagued the UK for years.
As first-time buyers face an increasingly competitive market, Thompson remained optimistic about the direction the government is heading. “They’ve gone from lots of incentives to encourage lots of new buyers, which is demand side, into supply-side policies, building lots more houses, which is good in particular for first-time buyers.”
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