By Hemesh Patel, Director, Property Finance at OakNorth
Last week, I published a blog looking at how the UK residential sector could be impacted by potential announcements in the Autumn Budget. Yesterday, the Chancellor delivered her Budget, bringing significant changes for property developers, investors, and SME housebuilders. These initiatives, which include adjustments to stamp duty, support for affordable housing, reforms to planning systems, and funding for the Build-to-Rent sector, aim to address the housing crisis, stimulate property investment, and enable more accessible homeownership.
Impact on property developers
The government’s National Planning Policy Framework (NPPF) consultation is intended to simplify planning procedures, enabling faster project approvals. Developers we’ve spoken with are encouraged by the potential introduction of a ‘brownfield passport,’ which aims to expedite permissions for developments on previously used land, expanding potential building sites with less red tape.
The Labour manifesto made a pledge to reform planning – as part of this, the Chancellor announced an investment of over £50m to expedite large, stalled projects. This funding includes hiring 300 new planning staff to boost local planning authorities, with the aim of helping developers navigate bureaucratic obstacles more efficiently.
Implications for property investors
UK property investors are set to experience mixed outcomes due to new tax adjustments announced, and the government’s focus on supporting first-time buyers. Effective from today, the Higher Rates for Additional Dwellings (HRAD) in Stamp Duty Land Tax will increase from 3% to 5% for those purchasing second homes, buy-to-let properties, or properties acquired through a business. This tax increase is likely to discourage speculative investment in secondary properties, as it raises the financial threshold for these purchases. Investors who exchanged contracts before today (31 October 2024), however, will remain unaffected.
Despite the increased tax on secondary properties, the government has introduced incentives to support the Build-to-Rent sector, including £3bn in housing guarantee schemes that provide lower-cost loans. This funding is expected to facilitate the development of thousands of rental units, making it easier for property investors focused on rental income to obtain financing.
The government’s permanent establishment of the mortgage guarantee scheme, which supports lenders offering 95% loan-to-value mortgages, is another key factor that could impact the property investment landscape. By making homeownership more accessible, the scheme could shift demand away from rental properties as more individuals are able to afford their own homes. This trend could impact demand in the rental market, particularly for property investors who rely on rental yields. However, in high-demand areas such as the Cotswolds, Surrey, and several boroughs in London where buying remains out of reach for many, the Build-to-Rent sector should remain robust.
Opportunities for SME housebuilders
SME housebuilders will likely benefit from government initiatives aimed at increasing affordable housing and reducing planning bottlenecks. The £500m boost to the Affordable Homes Programme for example, is projected to create an additional 5,000 affordable homes, offering SME housebuilders more opportunities to participate in affordable housing projects. Additionally, government funding of £47m to address issues around nutrient neutrality and unblock stalled developments will facilitate the delivery of an estimated 28,000 homes, which could particularly benefit smaller housebuilders who may otherwise struggle with such regulatory and financial challenges.
Long-term, the government’s exploration of a new social housing rent settlement, potentially offering CPI+1% for five years, would bring stability to the sector, allowing SME housebuilders to plan projects with predictable returns. This move could result in a stronger focus on social housing by smaller firms, as it would mitigate some of the financial uncertainties that come with affordable housing projects.
Sustainability
The government’s emphasis on energy-efficient and affordable homes aligns with the industry’s growing focus on sustainability, creating avenues for developers to work on projects with long-term environmental and social benefits.
For example, its £25m investment in a joint venture to create 3,000 energy-efficient affordable homes could help SME housebuilders align with sustainability goals and meet demand for energy-efficient housing. This investment signals a growing commitment to addressing both housing shortages and climate impact, which may provide SMEs with a more stable, sustainable framework for future developments.
The announcements made in yesterday’s Autumn Budget represent a multi-pronged approach to tackling the UK’s housing challenges. Property developers can expect a more streamlined planning processes and more accessible development sites, while investors will need to navigate higher taxes on secondary property purchases and adapt to a changing rental market. SME housebuilders, meanwhile, stand to benefit from increased government funding and incentives aimed at affordable, sustainable housing projects.
Since our launch in September 2015, we’ve lent over £12bn, directly supporting the creation of 27,000 new homes across the UK – the majority of which are social and affordable housing. If you’re a property developer, investor, or SME housebuilder looking for funding for new projects, please get in touch and I’ll see if OakNorth can help.
Contact:
Hemesh Patel
[email protected]
