Autumn Budget 2021: What does it mean for the property market?

October 27th 2021 was an important day for the UK economy, with Rishi Sunak delivering his third Budget since becoming Chancellor.

During his speech, Mr Sunak announced spending increases of £150 billion over three years. The spending includes £7bn for transport projects, plus £6bn to tackle NHS backlogs and almost £2bn to help schools in England catch up following the Covid-19 pandemic.

While much of the Chancellor’s speech in the House of Commons focused on the country’s road to recovery from the coronavirus situation and unfolding challenges following Brexit, Mr Sunak also unveiled broader measures that will impact the workforce, businesses, and the property market.

Summary of Budget headlines

Overall, the 2021 Autumn Budget ran for around an hour. So to save you time, here are some of the headline announcements from the Budget:

Accelerated recovery of the UK’s economy

During his speech, the Chancellor told the House of Commons today that the government’s fiscal watchdog, the Office for Budget Responsibility (OBR), expects the UK economy to recover to pre-pandemic levels by the end of the year.

Earlier in the year, the OBR estimated that the economy would grow by 4% throughout 2021; however, this figure has been revised upwards with the expectation that it will expand by 6.5%.

What’s more, longer-term damage to the economy due to the pandemic has also been revised down from 3% to 2%.

For those keeping an eye on inflation, the Office for Budget Responsibility (OBR) predicts it will hit 4% by the end of the year – double the Bank of England’s target.

How will the 2021 Autumn budget affect the housing market?

It is very rare for a Budget not to include new home targets, and yesterday’s briefing was no exception to this rule.

Key announcements from the Autumn Budget included the removal of dangerous cladding from high-rise buildings, additional funding for new homes, plus the redevelopment of brownfield land. Speaking about his ambitious plans, the Chancellor announced that housebuilding is set to witness the “largest cash investment in a decade.”

£2.4 bn new homes promise

The Chancellor unveiled an investment of almost £24bn to build new homes, with £1.8bn earmarked for the development of 1,500 hectares of brownfield land that has the potential to deliver 160,000 new homes.

The property industry has drawn similarities between the £1.8bn new homes pledge and its 2015 Starter Homes Initiative, which was scrapped before any properties were built.

Mr Sunak also confirmed £11.5bn investment into the Affordable Homes Programme.

With the proposed new homes set to be built on brownfield land, commentators want the scheme to focus on delivering greener properties that offer longer-term environmental benefits.

The unlocking of brownfield land presents developers and future residents with the prospect of delivering property located within urban areas that boast convenient transport links.

On the surface, the Chancellor’s promise to inject the ‘largest cash investment’ could help alleviate supply in some areas, yet the amount of pipeline new homes is way off the government’s own target of 300,000 new homes per year.

Capital Gains Tax extension

There was much speculation in the runup to the Budget about Capital Gains Tax (CGT) increases; however, Mr Sunak did not include the change during his announcement.

Instead, property owners and investors selling a residential UK property will benefit from a 30-day extension to pay their CGT bill. Before the announcement, sellers had 30 days from the completion date to pay. The window has now been extended to 60 days from the completion of the sale.

The property industry has welcomed the simplification of CGT. As the change comes into immediate effect and is available to UK and international sellers, those who wish to release property from their portfolio will benefit from the extension straight away.

£5bn confirmed for cladding updates

The cladding crisis has regularly made headlines since the disastrous fire at Grenfell Towers highlighted safety issues in existing high-rise buildings across the UK.

With many leaseholders with affected properties unable to repair or sell their apartments, the government pledged £5bn in February this year to tackle the crisis amid pressure from those affected by the problem.

The new Building Safety Levy is a part of the government’s solution to tackling dangerous cladding is to raise £2bn by introducing a 4% levy on property developers with profits over £25m.

The new tax will be applied over a 10-year period starting next year. However, the expected £2bn it will raise is a far cry from the Housing, Communities and Local Government Committee’s £15bn estimated cost to remove all of the cladding deemed dangerous from high-rise buildings.

Will mortgage rates increase following the Budget?

In response to the Coronavirus outbreak, the Bank of England (BoE) introduced an emergency interest rate cut from 0.75% to 0.25% on March 11th 2020 and then again to 0.1% on March 19th 2020.

Lower borrowing rates have helped to protect and stimulate the economy throughout the pandemic. However, with rates still at a record low, many people have been left wondering when the BoE will start making moves to increase the cost of borrowing.

For the UK’s property market, low mortgage costs have fuelled borrowing activity, helped support house prices, and boosted capital gains for investors. In fact, the average cost of a property in the UK has increased by 10.6% year-on-year in August to reach £264,244 according to Land Registry.

With inflation set to hit the 4% mark by the end of the year, it is possible that interest rates may increase, albeit at a slow pace next year.

Planning reform

During the Budget, the Chancellor also included £65 million to ramp up England’s planning system and £9 million to help local authorities create 100 new urban “pocket parks” across the UK.

The plan includes digitisation to make local plans easier to access; however, those working in the sector have made calls for further and more meaningful overhauls to the planning system, focusing on delivering sustainable properties.

What was missing from the Budget?

Despite speculation and calls from the property industry, there was no extension of reduced Stamp Duty rates which was introduced as an emergency measure at the start of the pandemic.

During the reduced rate period, home buyers were not required to pay Stamp Duty on the first £500,000 of a purchase price until June 30th 2021, and a 0% rate was payable on property priced up to £250,000 until September 1st 2021.

As of October 1st, rates returned to pre-Covid levels. If you are currently looking to buy a property, you can use our Stamp Duty Calculator to determine your obligation.

Although property investors no longer have access to lower Stamp Duty rates, time-sensitive incentives remain to invest in a property, including record-low interest rates.

For more information about investing in UK property, you can contact Surrenden Invest team, who will be happy to assist with your search.