The recent Budget announcement by Rachel Reeves, marking the first Labour Budget in 14 years and by the first female Chancellor, has stirred reactions across the property and mortgage sectors, especially among landlords. While Reeves avoided drastic measures that might have alarmed the bond markets, her policies are expected to significantly impact buy-to-let investors and the rental market.

Key Budget Changes Affecting Property Investors

Reeves introduced a 2% increase in Stamp Duty for second-home purchases, raising the surcharge from 3% to 5%. Although there were concerns about potential hikes in Capital Gains Tax (CGT), the existing rates of 18% and 24% on residential property were maintained. Reeves also pledged £5 billion for housing initiatives, including £3.1 billion to bolster the Affordable Homes Programme, which will support renovation projects and fund the creation of 2,000 new homes. Additionally, changes to Right to Buy will allow local authorities to retain proceeds from social housing sales for reinvestment.

Industry Reactions: Landlord Impact

Industry voices expressed concerns that higher Stamp Duty and the potential effects on the rental market may worsen the housing shortage for renters.

Peter Stimson of MPowered Mortgages described the policy changes as a “whack with a hammer” for buy-to-let landlords, suggesting that higher entry costs could dissuade new investors, especially in a sector already weakened by rising taxes and mortgage rates. Buy-to-let mortgage applications this year represent less than 10% of total applications—a steep drop from past years. With fewer properties entering the market, Stimson anticipates rent hikes as landlords absorb these additional costs or leave the sector altogether.

Ben Beadle, CEO of the National Residential Landlords Association, echoed these concerns, citing analysis from Capital Economics that predicts a net loss of half a million rental homes over the next decade due to the Stamp Duty increase. Beadle criticized the move as counterproductive, stating that higher taxes on rentals typically drive up rents, exacerbating affordability issues for tenants.

Mark Harris, CEO of SPF Private Clients, acknowledged that while higher Stamp Duty may deter new entrants, established investors with proven business models may remain in the market. However, Jon Cooper of Aldermore Bank argued that increased landlord expenses could still lead to higher rents for tenants, as landlords attempt to offset the rising costs.

Impact on Mortgage Rates

Richard Campo of Heron Financial noted that pre-Budget anxiety had already affected the mortgage market, with lenders pulling competitive fixed-rate products due to market uncertainty. Although fixed-rate mortgage pricing remains high, Campo suggested it is unlikely to decrease in the near future, especially if the Bank of England holds back on rate cuts.

The Budget’s effects on borrowing costs have raised concerns that mortgage rate reductions may not occur as previously anticipated. According to Campo, any hope for lower mortgage rates may be dashed if the Bank of England opts to delay or reduce rate cuts.

Positive Takeaways

Despite the challenges, some industry leaders highlighted positive aspects of the Budget. Duncan Kreeger, CEO of TAB, pointed to the £50 billion infrastructure investment as a potential catalyst for regional growth, alongside the £5 billion earmarked for affordable housing, which could provide much-needed support for first-time buyers. John Phillips of Spicerhaart and Just Mortgages expressed hope that the Budget’s clarity would encourage buyers to act and stimulate market activity, with the possibility of further base rate cuts this year offering additional encouragement.

Looking Ahead

While the Budget includes measures aimed at bolstering the housing market, the added costs for property investors and rising mortgage rates may dampen enthusiasm among landlords. Many in the sector worry that higher entry costs for buy-to-let investors will limit the supply of rental properties, pushing rents even higher and intensifying the affordability crisis for tenants. Nonetheless, the commitment to affordable housing and infrastructure investment could offer some relief, particularly for first-time buyers and regional economies. Industry leaders advise property investors and prospective homebuyers to stay alert to market shifts and to act strategically in response to evolving financial pressures.