UK Chancellor Rachel Reeves has delivered the Labour party’s first Budget in 14 years, introducing the largest tax-raising measures in decades with £40bn in tax increases, alongside planned spending adjustments and new debt metrics.

Her commitment to “invest, invest, invest” aims to fix the foundations and deliver change. We provide our insights on how the Autumn Budget could shape the UK mortgage and housing market through 2024 and into 2025, and potentially impact you and your mortgage.

Inheritance Tax

The Chancellor announced an extension to the freeze on Inheritance Tax thresholds, keeping them in place until 2030. However, additionally, marking a significant change, inherited pensions will become subject to Inheritance Tax from April 2027, impacting the financial planning landscape. This may encourage individuals to access these funds sooner to pass on wealth, benefiting from taper relief. Combined with recent stamp duty changes, this could underscore the role of the “bank of mum and dad” as a key support for their children’s property purchases, particularly after the current temporary thresholds end in March 2025.

Employers’ National Insurance Contributions (NICs)

With effect from 1 April 2025, Employer’s NICs will rise from 13.8% to 15%, and the Secondary Class 1 NIC threshold will drop from £9,100 to £5,000. This significant cost increase for employers may affect employee bonuses, performance-related pay, and disposable income in the future, potentially impacting mortgage affordability.

Alongside recent employment legislation, these changes could influence employers’ decisions regarding workforce size, possibly hinting at the government’s intentions to expand available labour supply.

In the current environment, with steady mortgage rates projected through 2025, wage growth will play a vital role in supporting affordability and market momentum. However, NIC increases could hinder this, leading to a cooling in house prices and transaction volumes.

Stamp Duty Land Tax (SDLT)

Stamp Duty Land Tax Charge surcharge

The surcharge on SDLT for corporate purchasers of residential properties as well as second homes purchased by individuals, will increase from 3% to 5% from 31st October.

This sudden change will undoubtedly impact the buy-to-let sector, possibly encouraging more landlords to target commercial property, which is looking increasingly attractive.

Additionally, those considering a let-to-buy mortgage may have to review their figures. For some, this change could impact the feasibility of such a project who are on a very tight budget. This could lead to longer chains and transaction times, or cause some chains to fall through, if some investors reconsider their plans.

No extension to temporary stamp duty thresholds from March 2025

Currently, first-time buyers (FTBs) enjoy SDLT relief for homes up to £425,000 in England and Northern Ireland, with partial relief available up to £625,000. However, the government plans to revert these thresholds to pre-2022 levels by April 2025.

According to Zoopla, with the current thresholds in place, 80% of FTBs pay no stamp duty, while an additional 14% benefit from reduced fees. After March 2025, 20% more FTBs are expected to pay stamp duty.

In 2024, first-time buyers have led the market, making up 36% of total sales. This impending change may dampen the enthusiasm of some first-time buyers, particularly in high-cost areas. Some may leverage the new thresholds to negotiate lower prices, aiming to offset additional costs. Yet, with other buyers potentially willing to accept current prices, these negotiations may be unsuccessful.

In the shorter term, those wanting to avoid higher charges will need to act quickly and complete on time.

House Building Investment

In an effort to increase the availability of affordable housing, the government plans to invest £5bn to expand house building, including £3.1bn for the Affordable Homes Programme and £3bn in support for SMEs (Small and medium-sized enterprises) and the Build to Rent sector. We hope that by increasing the housing supply, more affordable good quality housing becomes available, particularly for first-time buyers in the future.

Looking ahead

While the Budget undoubtedly reflects changes and challenges for many, it may take time to fully gauge the full impact on the UK mortgage and housing market.

The Office for Budget Responsibility (OBR) has adjusted average inflation expectations above previous forecasts over the next four years, averaging 2.6% in 2025, and coming down slowly to 2% in 2029. This could mean that the Bank’s interest rate may not come down as fast as some had hoped over the next few years. Furthermore, gilt prices have been falling, increasing borrowing costs in anticipation of significant gilt issuance.

Increased competition amongst mortgage lenders however, had helped push average mortgage rates to a two year low, as reported to Zoopla. Along with recent positive inflation data, this has helped drive increased market activity recently.

The Bank of England revealed mortgage approvals reached a two-year high in September, and the number of people contacting agents about homes for sale was up by 17% with the number of sales agreed up by 29%, compared with this time last year, according to Rightmove.

However, Rightmove had also reported a more muted price increase this autumn than usual, as buyer choice reached its highest level since 2014. The Budget’s impact on wage growth may further affect mortgage affordability, activity and therefore house prices.

The latest Budget brings significant changes that could impact your mortgage plans, so acting promptly could be beneficial. Our consultants are here to answer any questions on how the Budget might impact you and your mortgage. You can reach our team on 0800 980 8777 or email info@privatefinance.co.uk. You can also book an appointment at a time that is convenient for you here.

Please be aware, Private Finance is not a tax adviser and this article does not constitute tax advice. Should you like us to introduce you to a specialist in this area, please let us know. 

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