The Industry Reacts to Labour’s First Budget in Nearly 15 Years

The dust has settled, somewhat. Thankfully, there are tentative signs that the market has taken Labour’s first budget in over 14 years in its stride.

The majority of landlords plan to remain in the sector following the budget, according to a survey from Benham and Reeves[1]. Most (84%) plan to stay in the BTL sector without making changes to their investment portfolio over the next 12 months. In fact, 4% expect to actually increase their portfolio size.

Our own CEO’s thoughts on the budget reflected this sense of relative stability.

“Unlike previous budgets – think Kwarteng’s mini-budget – Reeves opted for a more measured approach, refraining from pulling any proverbial rabbits out of the hat – although the increase to the stamp duty surcharge on second homes was unexpected,” he said.

“This approach should calm the lending and property markets, easing some of the uncertainty that has lingered in the lead-up to this announcement.

“In general, the clarity offered today is certainly welcome, though we’ll need to see how these policies translate practically.”

Mr Raja said that the tax reforms laid out will need careful consideration from brokers and investors alike but, surprisingly soon, the market will likely shift back to “business as usual”.

Still, while we embrace a positive outlook, we mustn’t lose sight of the realities now facing us. We’ll all be paying £40bn[2] more in taxes, spread across personal levies, business rates, housing, and more[3].

To get a wider perspective on all this, we reached out to several industry insiders for their thoughts on the budget, and what it may mean for the property market.

“There is a real risk that landlords could withdraw from the market or refrain from investing in new properties”

A few key tax changes caught the eye of those we spoke to. Specifically, the stamp duty update took many by surprise.

Juliet Baboolal, real estate finance partner at gunnercooke, shared that the new surcharge may have “far-reaching implications” for both the housing market and the wider economy.

“This policy seems to be a deliberate effort to reduce investment in buy-to-let and holiday properties by raising the upfront costs associated with these purchases,” she said.

“The primary aim is to alleviate some of the pressure on housing demand, especially in a market that has faced soaring prices and limited options for first-time buyers.

“However, while this policy may succeed in discouraging some investors, it raises legitimate concerns about exacerbating rental shortages in areas that are heavily dependent on the buy-to-let sector.”

It was pointed out that many communities across the UK rely on the PRS and should landlords refrain from investing in new properties, it could lead to more challenges for families trying to secure affordable housing.

Tom Brogan, a commercial property finance broker at Approved Finance Group, was also concerned about this.

“The stamp duty changes will leave a lot of people who are currently going through the process of buying a second home or buy to let property suddenly having to stump up an additional 2% that they hadn’t accounted for,” he said.

This, coupled with the capital gains tax (CGT) hike, may force landlords into inaction, which will only harm an already very competitive rental market.

“I was relieved to see there were no CGT raises on property sales, but I am happy to go on the record and say that I believe that it will come”

While we don’t take a political view here at Market Financial Solutions, it’s clear for anyone to see that most investors and operators in the property market were fearful of what Labour would introduce.

Steve Bench, a self-employed professional property investor with real skin in the game, expressed his sentiment very clearly.

“Labour have made it very clear, they are an anti-landlord, anti-entrepreneur party,” he said.

He did concede, however, that the results could have been much worse, at least where CGT was concerned.

“I was relieved to see there were no CGT raises on property sales. But I am happy to go on the record and say that I believe that it will come, along with further tax and tampering over the next few years.”

Further changes may be on the way but, as it stands, property investors are likely breathing a sigh of relief at the result.

Many feared the government would be tempted to align CGT rates with income tax rates, which would have sent tax bills skyrocketing[4]. Thankfully, for now, we’ve avoided this worst-case scenario.

Indeed, given how the market reacted to the mini-budget, the current government may be hesitant in making truly dramatic changes in the economy. A point Mr Bench seemed to have picked up on post-budget.

“I have no real political preference, this is just what I’ve seen from a purely business perspective,” he added.

“I must admit, they have been clever to appear not to be taking multiple shots at the PRS industry at the same time, which may be due to the negative press of late, with the PM’s controversial definitions of ‘working people’.”

“As an ex-publican, I felt for the pubs”

The very concept of working may see the biggest impact from the budget. National Insurance (NI) changes are likely to have long-reaching ramifications for employers and employees alike. A reality Mr Bench felt very personally.

“As an ex-publican, I felt for the pubs. National Insurance is up 1.2%, raising contribution costs for employers,” he continued.

“Minimum wage up. Business rates set to go up – all the while we get cheers from the benches as a penny is taken off the price of a pint. Unfortunately, that’s the only bit many people will hear.”

Mr Brogan agrees the NI hike will create challenges for businesses across the economy. Challenges which may only present themselves down the road.

“It looks like Sir Keir does in fact class anyone who owns a business or multiple properties as not a ‘working’ person,” he said

“The reality of the changes to NI and CGT – where a large chunk of that £40bn will be raised – is that there will be a trickle-down effect.”

“Businesses will eventually pass these higher costs onto their employees in some way in the future.”

“This uncertainty could complicate planning for clients and necessitate a thorough analysis of the new legislation as it becomes available”

One of the key tax changes that will likely impact homeowners directly was inheritance tax (IHT). Labour extended the nil-rate band freeze by a further two years[5], meaning more people will likely be hit by the tax as property prices rise.

Certain pension assets, AIM stocks, and agricultural investments will also be brought into its remit[6]. Mr Brogan reflected on how these changes likely came about.

“The most direct to individuals tax changes were those made to inheritance tax, which I’m sure they see as an easy target,” he said.

“A lot of the money people gain from inheritance can often be a bonus rather than something relied on, albeit there are obviously some people that do rely on that money.

“Nonetheless, it obviously leaves a bad taste in the mouth to levy further taxes on money and assets gained during a lifetime that have already been taxed.”

For Ms Baboolal, the concern is less about the actual changes introduced, and more about what was missed.

“The lack of clarity regarding inheritance tax treatment for trusts established by non-domiciled individuals raises questions about the future of these arrangements,” she said.

“This uncertainty could complicate planning for clients and necessitate a thorough analysis of the new legislation as it becomes available.

“Overall, while the intention behind these budgetary measures—to address housing demand and create a more equitable market—is commendable, it is essential to carefully consider the broader consequences of such policies.”

It’s still very early days, and we have a long way to go until we fully understand how these new policies will impact the property market. What’s important going forward, is that all market participants react accordingly, and sensibly.

“Achieving a balance between curtailing speculative investment and ensuring sufficient housing availability for both buyers and renters is crucial for fostering a healthy and sustainable property market.

“It will be imperative for stakeholders, including policymakers and industry professionals, to closely monitor these developments and adapt strategies accordingly to mitigate any adverse effects on housing accessibility and overall market stability.”

“There are plenty of reasons to still be optimistic!”

Despite everything, the outlook in the property market is looking promising. If we look at the wider economy, we can see that things are going in the right direction. Especially in the specialist lending scene.

“In the unregulated property world I live in though, as inflation is more under control we should be able to expect reductions in the base rate, hopefully making BTL mortgages, commercial mortgages, bridging loans, and development finance more affordable,” added Mr Brogan.

“Although these are some of the biggest tax rises ever in a budget, it’s not as nuclear as it could’ve been, or maybe some people were expecting.

“And in the property world, there is plenty of reasons still to be optimistic, and there will be plenty of people out there who seize opportunities in this time to make property work for them!”

Chris Sykes, technical director and senior mortgage consultant at Private Finance, shared similar thoughts, noting it may take time to fully gauge the 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,” he said, focusing on the coming years.

“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.”

What’s more, 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% year-on-year, according to Rightmove.

Hopefully, these positive results will continue in light of the budget. Although, Mr Sykes urged caution here.

“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.”

Regardless of what’s on the way, Market Financial Solutions and clearly – other stakeholders in the property market – are ready to support borrowers as well adapt.