NEWS: Autumn Budget 2024 - How it Affects the Property Market

In the 2024 Autumn Budget, the government announced several tax changes to fill a “£22 billion hole” in the UK’s public finances.

Written by: Luka Ball

Labour’s government, which came to power in July, has raised Employer National Insurance contributions, Capital Gains Tax, as well as made changes to Inheritance Tax and Stamp Duty. Prior to the election, Labour ruled out increasing National Insurance for employees, income tax, or VAT as part of its manifesto pledge. However, these changes will still affect Britain's working people, even if not directly. 

Find the perfect mortgage

In the leadup to the election, there was speculation that Labour may also raise other taxes, namely Capital Gains and Inheritance Tax, in addition to changes to National Insurance. 

The £22 billion shortfall, identified in an audit published by the Treasury, reflects a combination of higher-than-expected inflation, public sector pay rises, and unforeseen costs like military aid to Ukraine.

Additionally, inflation recently dropped to 1.7% - the lowest it has been in three-and-a-half years. Financial experts now predict that the Bank of England will reduce the base rate as early as November, prompting mortgage rates to drop further. 

Autumn Budget 2024: Key Changes

Prime Minister Keir Starmer hinted that there would be some divisive legislation changes, commenting that this year's Autumn Budget would be "painful." In the weeks approaching the budget, there seemed to be equal parts anticipation and criticism surrounding this Autumn Budget.

Part of this could be attributed to the fact that Labour has long been associated with raising taxes and increased borrowing. 

However, the key difference this time is that Chancellor Rachel Reeves is changing the way we measure debt instead of altering the borrowing target.

Here's what has changed:

• Employer National Insurance
• Capital Gains Tax
• Stamp duty
• Inheritance Tax

Employer National Insurance Contributions

National Insurance is a tax paid by both employees and employers to fund the NHS and state benefits, including the state pension. Currently, employers pay 13.8% on employees’ earnings above £175 per week, and this will rise to 15% from April 2025.

Employers would indeed bear the initial cost of a higher National Insurance rate, but the long-term effect could impact workers through slower wage growth, less job opportunities, and reduced working hours as companies absorb the elevated costs.

Small and medium-sized enterprises (SMEs) may be particularly vulnerable to these changes. With limited resources, these businesses could struggle to absorb higher National Insurance costs, potentially leading to layoffs or slower growth.

Capital Gains Tax

As expected, there have been changes to Capital Gains Tax. The lower band will be raised from 10% to 18% and the higher rate will be raised from 20% to 24%. However, there won't be any changes to CGT for second homes. 

The rise in Capital Gains Tax could accelerate the number of landlords leaving the rental market, with a forecasted reduction of 790,000 rental properties over the next decade, according to Capital Economics.

The prospect has already caused ripples in the property market, with more than a quarter of landlords (29%) planning to sell a property within the next 12 months. Only 11% of landlords intend to purchase new properties. If the government proceeds with the tax hike, it could also trigger a rush of landlords selling off properties before the new rates take effect.

Find the perfect mortgage

Stamp Duty

The higher Stamp Duty rate for second homes has been raised from an additional 3% to an extra 5%, and from April 2025, the threshold for residential Stamp Duty will be lowered from £250,000 to £125,000.

Current Stamp Duty Tax Thresholds for England & Northern Ireland:

Rates from 1st April 2025

As of the Autumn Budget in October 2024, you'll need to pay an additional 5% Stamp Duty on additional properties. And from April 2025, residential purchases will be subject to a lower Stamp Duty threshold. 

Inheritance and Council Tax

The government has frozen the threshold for inheritance tax until 2030.

Currently, inheritance tax is levied at 40% on estates worth over £325,000, though various tax-free allowances reduce the number of estates subject to the tax. According to HMRC, only 4% of estates are liable for inheritance tax.

There will be reforms to tax relief on assets owned by farmers and other businesses, and pension pots will be eligible for tax from 2027.

The government may consider reforms to increase the number of estates paying the tax or to remove some of the allowances that shield assets from taxation.

There have also been calls to modernise the council tax system, which has been in place since 1991. Keir Starmer has expressed interest in following the Welsh Government’s approach, which updates council tax bands based on current property values. Such a reform could increase council tax revenue while reflecting modern property prices.

Compare rates and get an instant quote using our online mortgage calculator

How Could These Changes Affect the Property Market?

While the changes will still have an impact on the rest of the UK, the atmosphere has been that of cautious optimism. 

It's common for several legislation changes at once to cause uncertainty, which impacts lender confidence and borrowing costs, but this is usually short-lived. Once the dust settles, mortgage rates will likely see further reductions, particularly if the Bank of England base rate drops again. For homeowners and prospective buyers, this should ease monthly payments and mortgage affordability. 

That being said, the Conservative government had tightened up legislation surrounding landlords and the buy to let market. Slim rental yields and less attractive stamp duty has led to a lot of landlords selling their properties. 

This could free up a larger amount of homes for first time buyers and smaller property investors, but it could also make the rental market more competitive for prospective tenants.

Furthermore, this could be a fragile time for businesses. 

The proposed tax changes in the Autumn Budget, particularly the potential rise in Employer National Insurance contributions, will drive up operational costs for SMEs, increasing their reliance on business finance.

As many SMEs already operate with limited cash flow, the higher cost of Employer National Insurance and potential Capital Gains Tax increases could squeeze margins further. This could lead to a greater demand for loans or lines of credit to cover shortfalls, invest in growth, or simply maintain liquidity.

If borrowing costs remain stable or decline due to lower inflation, SMEs might find finance more accessible. But any rise in taxes or operational expenses could push more businesses to seek external financing solutions to stay afloat.

The changes announced in the Autumn Budget weren't as extreme as many were expecting. There are aspects of the budget that do cater demands that previously haven't been met.

For example, the government has increased personal tax thresholds in line with inflation. Prior to this, there had been complaints that higher inflation has led to high earners in particular paying more tax than originally planned.

There is still controversy surrounding the outcomes of the Budget, especially among farmers and business owners. However, it's arguable that the Chancellor has offset a large portion of the expected criticism by introducing smaller tax increases, sticking to Labour's manifesto, and avoiding unnecessary borrowing.

What Do Our Experts Say?

George Abouzolof

Senior Finance Broker CeMAP

Inflation has dropped below 2%, which isn’t favourable news for the UK’s economic growth. The 2% target strikes a fine balance between avoiding high levels of inflation while maintaining healthy GDP growth.

2% inflation per year is typically an indicator of a healthy economy, so it’s likely that there will be further reductions from the Bank of England to stimulate market movement. If this goes ahead, there will consequently be more affordable mortgage rates in the coming months.

There’s also a level of concern regarding rental yields, less attractive stamp duty and BTL legislation which could see a further number of landlords selling up. This could free up a number of starter homes for those waiting to get on the property ladder, but it may also put pressure on already competitive rental market.

Darcie Mackenzie

Finance Broker CeMAP

We’re all hoping that mortgage rates will come down steadily in the New Year, but there’s been a jump in government spending following the Budget which could pose an obstacle and slow the rate at which we see reductions.

However, it would be great to see rates drop to 4% in 2025 and perhaps this may mean lower loan-to-value clients can access rates within the mid-3s and even lower.

There are a few factors at play that could cause interest rates to rise or fall, and whichever has the most leverage will tip the scale. With this uncertainty in mind, it’s important to be savvy when selecting products.

For a number of clients in the current buy-to-let market, choosing a lower interest rate product with higher application fees may be the only way an investment purchase or refinance is possible, due to the amount of room required between the monthly payment and the rent received.

Landlords are being tied into restrictive markets due to a lack of two-year fixes as lenders impose tighter affordability rules in this area, but if this causes the market to slow, products could become more competitive.

It is also important to note any trends. Back in 2018/19 when we could source sub 1% rates, a higher rate was charged for longer scheme lengths, which suggested that lenders felt rates could be on the increase over the next 5 years, and they were right. Now, however, the longer schemes carry the lowest rates, which could suggest a flip in their thinking and perhaps they expect significant drops over the next 5 years.

Find the perfect mortgage

What Low Inflation Means for Your Mortgage

The recent decline in inflation has been driven by lower airfares and petrol prices. Inflation is now below the Bank's 2% target, increasing the likelihood of a 0.25% point reduction to the base rate, potentially leaving room for a second cut in December.

As a result, mortgage rates are expected to fall, benefiting homebuyers, those remortgaging, and buy-to-let investors. Lower rates could stimulate the housing market by making borrowing more affordable, leading to increased activity.

Variable-rate mortgage holders would see immediate reductions in payments, while those with fixed-rate deals could find better offers when their terms end.

The short-term impact is likely to ease cost-of-living pressures, but the long-term effects will depend on the stability of inflation and broader economic conditions.

EPC Ratings and Rental Market Reforms

A challenge on the horizon for landlords is Labour’s commitment to improving energy efficiency in rental properties. The government recently announced changes to the minimum Energy Performance Certificate (EPC) rating for rental homes, requiring properties to meet a C rating by 2030 as part of the Warm Homes Plan.

Landlords will soon have access to funding through the Warm Homes: Local Grant. However, many still face significant costs to upgrade their properties to meet the standards, which were originally put in place by the Conservative government in 2021 as part of the Net-Zero initiative.

According to Simply Business, over a third of landlords expect to spend between £1,000 and £10,000 to meet the new EPC requirements. Some may find the cost of upgrading prohibitive, leading to further sell-offs in the rental market.

How Can You Find an Affordable Mortgage in 2024?

Despite current optimism about declining mortgage rates, deciding on the best option can be challenging to navigate.

We can help you compare mortgage products and their cost to find the best deal based on your specific situation from a wide range of lenders nationwide.

Expert mortgage advisors have their finger on the pulse of the latest mortgage market news. Whether you're a first-time buyer or looking to refinance or invest in a BTL, we can help you understand your mortgage options so you feel confident you're making the right choice.

To see what we can do for you, give us a call at 0203 900 4322 or book a free consultation below.

 Book Consultation