This year’s Budget has been one of the most newsworthy in recent times, with a lot of headline policies that will no doubt effect many people in the UK in one way or another.
A lot of the changes are clear strategies by the chancellor in addressing what she believes is a requirement to drive up performance of services in the public sector.
The property sector has also been affected in the Budget, something that we always keep a close eye on for our clients. Having specialist teams that handle a huge number of transactions for both the homeowner market and the investor and property portfolio market, it is important to consider what these changes will mean for our clients.
A new SDLT surcharge rate came into effect the day after the Budget was announced.
In addition, though not announced in the Budget, there are further imminent changes to the SDLT brackets, which will take effect from 1st April 2025. These changes will impact all house purchases in the UK that are over £125k.
So, the question therein lies, with The Bank of England base rate still much higher than pre-pandemic rates despite the recent drop, will the Budget changes affect the rate of prospective cuts over the next few years?
What has changed regarding SDLT?
- The higher rate for additional dwellings surcharge from 31st October 2024 has increased from 3% to 5%. (NB anyone exchanging pre-31st October 2024 will be able to utilise the pre-Budget rate)
- Also, the single rate of SDLT that is charged on the purchase of dwellings costing more than £500,000 by corporate bodies has also increased by 2% – from 15% to 17% from 31st October 2024.
Why has this been done?
The chancellor is trying to provide an advantage to first time buyers by imposing a higher tax on the second home buyer/landlord etc, to make more homes available for first time homeowners.
There is also another change for SDLT which is to hit in April 2025. Though, not mentioned in the Budget, there is no extension of the SDLT break that we are currently in, set by the previous Government in 2022.
After 31st March 2025, the rates will go back to a familiar, though less appealing, rate for the home buyer. The old, pre-covid, tax rate is being brought back in for properties over £125k up to £250k.
The current rates can be found on the Government’s website as well as the new rates to start from 1st April 2025.
Stamp Duty Land Tax: Residential property rates – GOV.UK
This means that if you were to buy a property for £300,000.00 on 31st March 2025, the SDLT liable would be £2,500.00.
Whereas, if the same property for £300,000.00 exchanged and completed in April 2025 then the SDLT liable would be £5,000.00.
The First-Time Buyer (FTB) relief which currently allows a 0% SDLT up to £425k, for properties worth less than £625k will be slashed to £300k and for properties worth a maximum of £500k in the new Tax year.
How will the Budget affect the Bank of England base rate over the next few years?
Following the most recent meeting with the MPC (Monetary Policy Committee) the Bank of England base rate was cut to 4.75%. This is great news for anyone on a variable rate mortgage as their monthly payments will go down.
It will also create a rather significant drive for all buyers across England and Wales to complete prior to 31st March 2025 – both to capitalise on the FTB relief they currently have as well as the relaxation of the rates and to make use of any new products brought out by lenders.
Savings have not yet been announced on any mortgage products from lenders. However, once the dust settles after the Budget, the US election and the new base rate, we suspect the savings will occur for some fixed term products with some lenders. Even though fixed rate products arguably have already been factored in the recent rate cut.
This is only the second time that the base rate has been dropped since the spike after the pandemic. However, due to the new Budget measures and the risks posed by the new US presidential policies the Bank of England predicts the base rate reductions will not be as frequent next year.
I wouldn’t therefore expect any more reductions until 20th March 2025, and this is dependent on the CPI (Consumer Price Index) report, due on 20th November 2024.
It is expected that the CPI will increase to 2.5% due to the energy price cap and possibly higher as a result of the Budget and higher still given the US election.
The policies expected to come from the US will influence the world over the next few years and, in turn, the Bank of England base rate. It is predicted that the base rate will continue to reduce, but most likely the progression will be more gradual because of the raft of recent changes and probable changes to come.
The positive news, however, is that the forecast for the base rate by August 2027 is 3.5% – the MPC has increased this by 0.25% following the Budget polices being announced, which is not surprising.
To summarise:
- Budgetary measures have put more pressure on the landlord – though it is clear from the response seen online, that this will only make further deals required for the property investor. The change is likely to be minimal given the grand scheme of deals in the UK.
- There is likely to be a rise in property transactions between now and 31st March 2025 as a result of the SDLT changes and the interest cuts.
- Mortgage rates are expected to be cut in line with the base rate in due course, with further cuts expected next year with an estimated base rate drop to 4.25% by August 2025.
We always take the time to review the newest policies to ensure our clients are given the best and most current advice possible. Of course, a lot of the expected rate cuts noted above are speculative and taken from the forecast of the MPC.
As well as our experts in our new build and bespoke residential property teams, our specialist property team provides a commercially aware approach to property transactions for our property investor clients, targeted at the property investor and those seeking commercial financing options on residential properties. We ensure that such transactions are as streamlined and expeditious as possible.
If you have any questions or requests for quotes, please contact Daniel Tumilty by email dtumilty@jackons-law.com.
