In less than two weeks, Labour Chancellor Rachel Reeves will deliver her first autumn Budget since the party came into power earlier this year. Rumors suggest that the UK property market may be a key focus, with many in the industry anticipating significant changes that could affect landlords, property investors, and homeowners alike.
Just yesterday, the Office for National Statistics (ONS) announced that inflation had dropped to 1.7%, the lowest level in three years and below the government’s 2% target. Homeowners are likely to welcome this news as it increases the likelihood of an interest rate cut, potentially leading to lower mortgage rates.
In the rental market, the situation is also shifting. Reports indicate that landlords and property investors are seeing record-high rents outside of London. The average rent has risen to £1,344 per month, marking a 5.2% increase driven by strong demand from tenants. This trend has resulted in higher yields for landlords, making property investment attractive. However, many investors are now delaying further actions until the unveiling of the Autumn Budget on Wednesday, 30th October.
Anticipation of a Bold Budget
While Chancellor Reeves has stated that there are no plans to increase income tax, national insurance, or VAT, Prime Minister Keir Starmer has warned that the budget could involve some “painful” decisions. This hints at the possibility of unpopular measures that could impact various sectors, including property.
For years, property investors, particularly those in the private rental sector, have been calling for more favorable policies. These calls date back to when the Conservative government was in power, with many landlords seeking relief from what they view as punitive tax measures. One key demand has been for a reversal of Section 24 tax changes, which have reduced tax relief on mortgage interest for landlords. However, this appears unlikely at the moment. Additionally, some have proposed cutting stamp duty for property investors as a potential boost to the sector, but there are no indications that this will happen either.
What could be in store for landlords?
Energy Efficiency in the Private Rented Sector: The UK’s commitment to reducing its carbon footprint is almost certain to receive attention in the Budget. The property sector has already made significant contributions through changes to building standards, and Labour’s Energy Secretary Ed Miliband has confirmed plans to tighten energy efficiency rules. Property investors, particularly those with older homes, should prepare for more stringent regulations. Investing in new-build properties, which are typically more energy-efficient, may become a more attractive option for those looking to comply with future regulations.
Capital Gains Tax (CGT): Perhaps the most contentious issue for landlords and property investors is capital gains tax. While Labour has previously said it does not plan to make further changes to CGT, which was already raised under the previous Conservative government, there are rumors that this stance could shift. An increase in CGT would affect the profits on the sale of investment properties. However, it’s worth noting that, despite the potential for higher CGTs, the strong rental yields and capital appreciation in the UK property market make it a lucrative option compared to other asset classes.
Housebuilding Targets: Labour has reinstated minimum housebuilding targets, but with a more focused approach aimed at regions most in need, such as the North and the Midlands. This could benefit property investors, as these areas have seen some of the highest returns in recent years, particularly in the North West. A boost in housebuilding and regeneration in these regions could further drive property values and rental demand, offering more opportunities for investors.
