As the UK awaits the first Budget from Labour since its election earlier this year, residential property developers and investors are closely watching how the new government’s policies will shape the sector. While the government’s focus on stabilising the economy and boosting housing supply is welcomed by many, concerns remain around potential tax changes that could have long term implications for the sector.
Stabilising the economy
Recent months have seen a significant easing of inflation, with rates falling to 1.7% – below the Bank of England’s 2% target for the first time since 2021. This drop is largely the result of the Bank’s continued policy of maintaining higher interest rates to control inflationary pressures. However, as inflation cools, financial experts are predicting a potential reduction in interest rates at the Bank’s upcoming meeting on the 6th November.
For the residential property sector, this will lower construction costs while also making financing more affordable, encouraging developers to move forward with projects, and buyers to move forward with purchases. A more stable economic environment may also prompt longer-term investments, giving a much-needed confidence boost to the market.
Labour’s housing commitment
Labour’s target of building 1.5 million homes over the next five years is a key part of its housing strategy, supported by proposed changes to the National Planning Policy Framework (NPPF). Central to these changes is a “brownfield site first” policy, prioritising derelict or contaminated land for development, while also introducing flexibility in the use of certain green belt sites. This includes the introduction of a “grey belt” concept – underutilised urban fringe areas that could be developed.
For developers, these reforms open new possibilities, especially in areas previously restricted by green belt regulations. However, careful implementation is needed to balance housing demand with environmental considerations, and navigating community and regulatory resistance will no doubt pose challenges.
Raising the bar for sustainability
Sustainability remains a priority, with the government setting a target for all homes to meet an Energy Performance Certificate (EPC) rating of at least a band C by 2030. This aligns with the UK’s broader goal of achieving net-zero emissions by 2050.
For developers, retrofitting existing homes to meet these standards presents both a challenge and an opportunity. While it will require significant investment, the growing demand for energy-efficient homes could drive innovation in green building technologies. Developers focusing on sustainability, such as OakNorth customers Verto, Gr33n Homes, and Vabel have already seen strong demand for more sustainable homes, highlighting the potential market growth in this area.
A potential shift for buy-to-let investors
One of the most talked-about predictions of the Budget is the potential increase in Capital Gains Tax (CGT), especially as Labour pledged not to raise Income Tax, VAT or National Insurance. Specifically, there are discussions about aligning CGT with income tax rates, which could see the tax on property sales soar to as much as 40-45% for higher rate taxpayers.
For buy-to-let investors, this poses a significant dilemma. Many landlords have already begun selling off properties in anticipation of these changes, while others may hold onto their assets for the long term to avoid paying higher taxes. This could lead to reduced transaction volumes in the short term, with more property owners opting to wait before selling. For those that choose to do this, there will be other investment considerations such as retrofitting to bring their properties up to an EPC bank C or above by 2030, as noted earlier.
Looking ahead
The upcoming Budget presents a mix of challenges and opportunities for the residential property sector. While the government’s focus on housing supply, affordability, and sustainability offers strong potential for future growth, questions around tax reforms and planning will need to be clarified. Along with the rest of the sector, we’ll be closely watching the Budget for the detailed measures that will shape the future, and remain as committed as ever to supporting the sector.
If you’d like to discuss how the Budget could impact your business or want insights into navigating the upcoming changes, feel free to reach out to me directly. I’d be happy to share how OakNorth can support you through these transitions.
Contact:
Hemesh Patel
[email protected]
