On the 30th of September 2024, Rachel Reeves announced Labour's first Autumn Budget in fourteen years following the party’s return to power in July. This budget has significant implications for the property industry, especially the Buy-to-Rent (BTR) market. Overall, reactions have been mixed; however, there is a general sense of relief that the new policies offer clarity and direction, enabling more informed decision-making.
We understand that it can be time-consuming to fully get your head around the details a complex budget. That’s why we’re here to help. Let us break down the key areas of the Autumn 2024 Budget that impact the property industry and explore their implications for the sector.
Navigating New Stamp Duty Changes
Reeves announced an increase on the stamp duty surcharge for second homes from 3% to 5% effective from the 31st of October 2024.
Richard Donnell, Zoopla’s Head of Research has noted that, “The additional 2% surcharge on second homes and investment properties will likely dampen demand from buyers and investors." Consequently, larger BTR operators may see decreased competition from smaller scale landlords, who are more likely to be discouraged by the increased surcharge.
It is important to note however that this surcharge may not necessarily deter landlords from investing given the long-term nature of BTR investment. The upfront cost may be minimal compared to the potential return on investment.
Overall, while the increased stamp duty surcharge presents challenges for the BTR sector, it may also open opportunities for larger institutional investors amid a shifting market landscape.
How Capital Gains Tax Changes Could Shape Property Investment Strategies
Capital Gains Tax has been increased for lower-rate taxpayers from 10% to 18% and for higher-rate taxpayers from 20% to 24% on any assets other than residential property.
While the UK still maintains the lowest capital gains tax rate of any European G7 economy, these changes may still directly impact commercial property investment, forcing landlords to make critical decisions about selling their investment properties.
On the positive side, this news is beneficial for the BTR sector. Residential property landlords, wary of anticipated higher taxes, may have considered selling off rental properties.
Instead, there may now be a shift in focus to generating long-term value within their BTR portfolios rather than relying on asset sales for profit realisation. Therefore, strategies will need to be adapted to focus on enhancing operational efficiencies and improving tenant retention—goals that can be supported by property management software. These platforms can streamline operations, optimise tenant communications, and facilitate effective management of rental processes, allowing landlords to maximise their portfolios' potential.
It is important to note however, according to Lucian Cook of Savills, any relief landlords might feel from an unchanged capital gains tax is likely short-lived. The stamp duty increase may reduce the supply of private rentals, potentially driving up rents. This shift could deter new buy-to-let investors and prompt even seasoned landlords to reconsider their investments, further limiting options for those looking to exit the market.
Investment Announcements
This budget introduced two major investments for the property industry: an additional £5 billion to housing initiatives, with £500 million specifically designated to the Affordable Homes Programme and £1 billion for the removal of dangerous cladding.
The £500 million invested in affordable housing and commitment to build 1.5 million homes could stimulate economic growth in the property sector by generating construction jobs and driving demand for property services, materials, and other related industries. This positive economic environment could attract more investors to the BTR sector, where the demand for professionally managed rental options is strong. Increased economic activity can also boost consumer confidence, making renting a more appealing choice for people.
However, BTR operators may face more competition as more affordable homes become available, especially if these new homes attract renters looking to transition into ownership. However, given that the funds may fall short of delivering on such a large-scale target, the impact on supply may be less pronounced. Persistent housing shortages, particularly in urban areas, could maintain high demand for rental housing, benefiting the BTR sector.
The investment into cladding remediation will be spread across two existing funds: the Building Safety Fund and the Cladding Safety Scheme. This comes off the back of the Grenfell inquiry and is a step towards removing all dangerous cladding. This investment should improve overall safety for tenants, helping BTR operators attract and retain residents with the promise of enhanced safety measures. However, opinions are mixed on the adequacy and timing of this investment. Nicola John, Managing Director at Fire Door Maintenance, called the investment “too little, too late”.
The BTR sector may benefit financially if this funding reduces the remediation costs that BTR landlords might otherwise bear. This could improve the financial viability of some BTR projects, as safety remediation expenses have weighed on budgets and affected profit margins for developers and operators.
The visibility of cladding remediation will be beneficial for BTR developers' and operators' reputations, especially following high-profile incidents highlighting fire safety concerns. With the new funds aimed at accelerating work, BTR operators can reassure residents and stakeholders about enhanced building safety, potentially boosting occupancy rates and tenant retention.
Final Thoughts
In conclusion, Labour's Autumn Budget introduces significant changes for the UK property sector, especially the BTR market. The increased stamp duty surcharge may deter smaller investors, consolidating market share around larger BTR operators. Meanwhile, the capital gains tax hike could shift investor focus toward long-term value, encouraging landlords to prioritise operational efficiency over short-term asset sales.
Notably, Tim Parkes, CEO of RAW Capital Partners, highlights the recent rise in property and rental prices, suggesting that lower inflation and interest rates could drive “greater growth and momentum within the UK property market, even if the BTR market faces challenges still.”
Further investment in affordable housing and cladding remediation aims to boost safety and economic activity, though funding shortfalls may limit impact. Ultimately, the budget provides needed clarity, allowing BTR operators to strategise amid both opportunities and challenges in a dynamic landscape.