Promise of new homes holds 'little value in the short term': Budget brings little cheer for first time buyers

30 October 2024, 15:16

After a long wait for Labour's budget, warnings of "difficult decisions", and three months of intense speculation, scare-mongering and uncertainty, Reeve's budget was straightforward with very few shocks.

When it comes to housing specifically, headlines were few and far between. Reeves' focus is on building, with big commitments made to supporting housebuilders and increasing the stock of affordable homes. However, there was very little to cheer weary would-be first-time buyers, and some bad news for those buying second homes.

Those buying second homes will be hit by a 2% increase on the additional stamp duty rate. This comes into effect from tomorrow, leaving many buyers needing to find thousands of pounds extra overnight. Capital gains tax on residential property remained at 18% and 28% for lower and higher rates respectively; a relative surprise given commentary in recent weeks.

When it comes to first-time buyers, the promise of new homes being built or planning laws being relaxed understandably holds little value. Successive governments have made big pledges to increase housing stock, yet we still remain chronically short of new homes, and any future improvements will play out over decades not months.

Things that could impact first-time buyers in the short term were notably absent.

The Chancellor remained silent on the upcoming changes to stamp duty relief. We had been waiting hopefully to see if Labour might extend this for first-time buyers, but no such luck. As of April next year, first-time buyers will pay 5% on values between £300,001 and £500,000, and will lose their relief on prices above that.

This change alone will cost first-time buyers purchasing at £400,000 with a £5,000 stamp duty bill if they complete on a purchase on the 1st April 2025 versus £0 were they to complete the day before.

This has been largely underreported, but will be a huge shock, and an unplanned cost for many first-time buyers buying a property valued at over £300,000 from April next year.

Similarly, much-campaigned for changes to the government's Lifetime ISA caps or penalties didn't get any airtime at all. We had hoped to see some positive changes here in changing the maximum property price (£450,000) in line with property price growth, or reducing the penalty for ineligible withdrawals (which currently works out at 6.25% of your own savings plus the government bonus). Research shows that 5.8 million people would consider investing in a Lifetime ISA if the property price cap was removed.

Lastly, in order to protect social housing stock, Labour are reducing Right to Buy discounts for those looking to buy their council home.

Why does housing matter so much? Well, data shows that someone who owns a home will be £350,000 wealthier over a 30-year period than someone who rents. Helping a younger generation to get into their own homes sooner will create a more financially stable society.

We'd welcome seeing some positive changes from this government that can help first-time buyers toward this life milestone in the short-term.

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Polly Gilbert is CMO at Tembo, a specialist mortgage broker for first time buyers and buyers facing affordability issues.

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