The Labour Party will deliver its first Budget in 14 years on 30 October. There is already talk of what this may include after Labour pledged in its pre-election manifesto to build 1.5 million homes over the next five years.
Adding to the speculation, chancellor Rachel Reeves vowed to “get Britain building again” at the Labour Party Conference last month.
Reeves reiterated the party’s promise not to increase income tax, VAT or National Insurance; and not to increase corporate tax over the coming five years.
The chancellor said her Budget would drive for economic growth and there would be “no return to austerity”.
Changes to the planning system would allow building to happen more quickly, which would then see access to more affordable housing using existing schemes
But she also highlighted the £22bn “black hole” in the public finances left by the last Conservative government, which would require “difficult” tax and spending decisions.
One area of taxation that mortgage market participants hope will be included in the Budget is stamp duty.
Shaw Financial Services owner Lewis Shaw suggests the government should scrap stamp duty and council tax for residential properties — not additional properties — and replace these with a 0.75% annual property value tax.
Shaw says: “This would increase tax receipts for the government and be far more progressive than the current system.”
Average annual stamp duty receipts over the past six years have totalled £12.21bn, and the most recent years’ council tax receipts totalled £38.5bn, giving an annual tax take of almost £51bn.
How the government targets will be met is yet to be seen but it has repercussions throughout the whole mortgage market
According to Savills, the total value of all residential property stands at £8.7trn, so a 0.75% property value tax would raise £65bn annually.
Shaw explains: “This would put money back in the pockets of people who would spend it in the local economy, so we’d almost certainly get a chunk of economic growth from that single policy alone.
“It would also encourage downsizing for older people and stimulate more housing transactions, which is positive for people who want or need to move for jobs and lead to more efficient use of space of the current housing stock.”
Although first-time buyer (FTB) stamp duty relief was introduced in 2017, one of the few measures to be retained from the Mini-Budget of September 2022 was the extension of the nil rate to properties worth up to £425,000, and a reduced level of duty on purchases up to £625,000.
Those limits are due to revert to £300,000 and £500,000 respectively next year.
Stamp duty is already very punitive for overseas buyers of UK property
But L&C Mortgages associate director of communications David Hollingworth says: “With challenges for FTBs still so acute, there could be a chance to clarify whether this relief could be made permanent.
“Constant tweaking of reliefs for FTBs can simply cause unhelpful spikes in activity as prospective FTBs rush to try and meet the deadline.”
Hollingworth suggests there could be room in the Budget for more action on stamp duty, such as removing the tax for older homeowners looking to downsize.
He says: “The tax can act as a barrier to moving and result in more properties being held by ageing owners rather than being freed up for growing families.
“Removing that barrier could help to improve liquidity in the market.
“There’s also been the suggestion that rebates of stamp duty to those buyers that have improved the energy efficiency of their home could help encourage movers to engage with retrofitting, adding an incentive that will help boost the steps toward greening of housing stock.”
With challenges for FTBs still so acute, there could be a chance to clarify whether this relief could be made permanent
Although many are looking for changes and clarification around stamp duty, Aria Finance managing director Lucy Waters hopes there will be no increases to banding, nor a surcharge on stamp duty.
Waters explains: “The tax is already very punitive for overseas buyers of UK property, and of course high-value assets, and these changes can have a huge impact.
“Although we want to create more opportunity for FTBs in the market, we must consider those in ownership with higher mortgage payments, who rely on the value of their assets growing at some rate or, at the very least, remaining flat.”
Waters notes that a focus on affordable housing and creating more homes “feels like a fairer approach and, given Labour’s commitment to open up the planning system to help create more development, we would hope to see things improve off the back of that”.
Also weighing in, Mortgage Advice Bureau business principal Kate Fuller says changes to the planning system “would allow housebuilding to happen more quickly”.
A property value tax would increase tax receipts for the government and be far more progressive than the current system
She adds: “It would encourage builders to build, which would then see access to more affordable housing using existing schemes for FTBs.”
Meanwhile, The Mortgage Mum senior mortgage adviser Sally Mitchell says: “Housing supply is something that has been talked about throughout the election campaign.
“How the government targets will be met is yet to be seen but it is an issue that has repercussions throughout the whole mortgage market. The lack of housing needs to be addressed after years of underachievement.”
Although the exact contents of the Labour Party’s Budget remain unknown, what is apparent is that there are issues that need to be addressed around building new homes, the current planning system and the use of stamp duty.
This article featured in the October 2024 edition of Mortgage Strategy.
If you would like to subscribe to the monthly print or digital magazine, please click here.
