Reaction

In this week's blog, as the dust settles on the first Labour budget in 14 years, we unpack what it may mean for the UK housing market. There will be pain points in the coming months for smaller businesses absorbing some of the increased overall tax burden; however, with tough decisions now made, we will attempt to extrapolate the positives for home building and begin to look at the bigger picture. This picture includes the government investing more than five billion pounds to deliver their housing plan, including three billion pounds worth of support and guarantees for small housebuilders. With a focus on investment to renovate sites across the country - all with the combined goal of delivering new homes, we are optimistic that the challenge is being taken relatively seriously.

One of the key amendments in the budget was around stamp duty. Currently, no stamp duty is levied on properties under £250,000, with first-time buyers exempt for properties up to £425,000. This exemption, however, is set to end in March 2025, meaning the thresholds will revert to their previous levels, requiring tax on purchases over £125,000 for existing homeowners. For first-time buyers, the tax-free limit will be reduced to £300,000, significantly impacting buyers in high-cost areas like London, where average property prices are well above this threshold. Labour also announced plans to increase the stamp duty rate on second homes and investment properties from 3% to 5%, aiming to ease competition for first-time buyers by reducing demand for these additional properties. According to Rachel Reeves, this policy could help over 130,000 people buy their first home or move over the next five years. This approach may improve market liquidity by facilitating more property transactions, enabling movement within the housing market, and allowing more individuals to enter homeownership - the same market our client base is selling into, so any strategy that enhances that market will have hugely positive knock-on effects for P2P. A healthy buy-side market that speculators don't dominate ensures demand for new builds, maintains stable property values and reduces risk on debt. A thriving market supports timely project sales, enabling borrowers to repay debt and, in turn, brings more lenders to market. So, encouraging this cycle fosters growth and stability in the sector in the long term, even if increased taxation is immediate.

Confucius wrote that the interplay of opposite principles constitutes the universe, ying and yang, so it would be remiss of us not to balance out the above with the fact that Labour’s budget also introduced an increase in capital gains tax on landlords, mainly targeting “carried interest” gains. This runs the risk of property investment becoming less profitable for landlords, which the government hopes will level the playing field for first-time buyers. However, as we have discussed in this blog many times, unintended consequences are the issue; the increased tax burden could drive more landlords out of the private rental sector. With fewer rental properties available, the imbalance between demand and supply could intensify, increasing rental prices. This comes at a time when renters are competing fiercely for limited housing options, with average rents rising nationwide. As a result, there’s the worry that costs will be passed on to tenants, exacerbating affordability issues in the rental market, where the value is solely contrived by people's ability to afford the rent.

To finish on a more serious note, a final point to add is the earmarked billion for removing hazardous cladding. Following the tragic Grenfell Tower fire, unsafe cladding has been a significant issue for homeowners. Many properties with flammable cladding have seen plummeting values, with owners unable to sell or afford the necessary safety improvements. The fact that the government is showing a duty of care here to resolve this situation as quickly as possible is encouraging for all to see.

So, without rushing to judgment while the ink is still wet, Labour’s Autumn 2024 Budget has revealed a multifaceted approach to the UK’s housing crisis, tackling affordability from multiple angles. The ultimate impact of these policies will depend on their execution and the government’s ability to balance these initiatives with the realities of the UK’s diverse housing market. The positives for the alternative lending sector are that the government has shown that they are willing to boost the health of the overall housing market, even though it's impossible to please all parties simultaneously. Perhaps our conclusion, for now, is that making complex and not always popular decisions is necessary to ensure a healthy liquid market continues to underpin our asset class.

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