Introduction
Budgets often arrive with plenty of speculation for the housing market. This one ultimately delivered relatively little to change the picture for most homeowners, particularly those in prime markets.
The Chancellor’s central message was one of reassurance: creating some breathing space for businesses and households today, while laying the groundwork for longer-term growth. By historical standards, however, this was a relatively quiet Budget, with reassurance taking precedence over big-ticket reform.
Housing followed much the same pattern. The new Your First Home scheme should make the sums work for more first-time buyers purchasing a new-build home, while offering some support to housebuilders. Landlords, meanwhile, face another rise in property income tax, with rates increasing by a further two percentage points from April next year.
For most existing homeowners, though, the Budget changes relatively little. There was little aimed directly at encouraging people to move, downsizers to downsize or addressing the wider costs associated with buying and selling. For prime households in particular, the immediate market backdrop remains much as it was before the Chancellor stood up.
One area prime homeowners will be watching more closely came outside the Budget itself. The government confirmed today that it will proceed with the High Value Council Tax Surcharge on homes worth £2 million or more in England. The broad direction was already known, although today’s response provided more detail on how it will work, including a 100% premium for qualifying long-term empty homes and measures intended to help councils identify liable owners.
So while there is more to digest at the edges of the market, for most prime buyers and sellers there is little here that fundamentally changes the decision of whether, or when, to move. Instead, mortgage rates, economic confidence and households’ expectations for the year ahead will continue to set the tone for the housing market. The bigger housing policy interventions now appear to lie further ahead, with the government’s ten-year plan expected next year.
Key policy announcements
- Your First Home scheme: From February 2027, a new £4.7bn equity loan scheme will offer first-time buyers an interest-free government loan of up to 20% of the property value. Household income caps are £110k outside London and £140k in London, with a 2.5% minimum deposit and a five-year interest-free period. The scheme is expected to support around 70,000 buyers.
- First-time buyer ISA to replace Lifetime ISA: From April 2029, a new First-Time Buyer ISA will offer a 25% government bonus on savings towards homes up to £450k. Existing LISA holders buying above the £450k cap will also see the withdrawal charge cut from 25% to 20% from October 2026.
- Savings & Property Income Tax: From April 2027, tax rates on savings and property income will rise by a further 2 percentage points to 24%, 44% and 49% for basic, higher and additional-rate taxpayers respectively.
- Social and Affordable Housing: £430m to help more homeless people off the streets, alongside a commitment to building 10,000 social and affordable homes. It also includes investment to tackle rough sleeping. Land sold to registered social housing providers will also be zero-rated for VAT from April 2027.
- Building Regulations: No major changes to building regulations will be made for the remainder of this Parliament, except where needed to improve building safety, including implementing recommendations from the Grenfell Inquiry.
- Household Energy Payment: £100 council tax rebate for bands A-D from January 2027.
- Minimum wage: From April 2027, the national minimum wage and national living wage will be increased by 3.9%. This will raise the National Living Wage to £13.21 an hour and the 18-20 National Minimum Wage to £11.27.
- Energy Bills: Gas standing charges will be abolished, with the government aiming for implementation by the end of 2027 or as soon as possible afterwards. The 0% VAT rate on domestic electricity will also be extended to July 2027, expected to reduce the annual Ofgem price cap by around £50.
- Food Tariffs: Tariffs on over 100 food products will be suspended for two years until December 2028.
- Cash ISA: Plans to reduce the annual Cash ISA allowance have been scrapped, keeping the limit at £20,000.
- Business Rates: From April 2027, the threshold for 100% Small Business Rates Relief for qualifying retail, hospitality and leisure properties will rise from £12,000 to £18,000.
- Bank Surcharge: The Bank Corporation Tax Surcharge will temporarily rise from 3% to 6% between January 2027 and March 2028 to help fund household energy support.
- Fiscal Devolution: From April 2027, mayors will receive a 20% share of locally retained business rates, with local and regional government intended to retain 100% by the end of the decade. Mayors will also receive an assigned share of income tax from 2028.
- Fiscal Rules: Commitment to balance day-to-day spending with revenues and have net financial debt falling as a share of the economy by the third year of the forecast.
WHAT IT MEANS
The economic outlook remains subdued, with higher energy costs and interest rates expected to weigh on growth and household finances. GDP growth is forecast to slow from 1.2% in 2026 to 1.0% in 2027, while unemployment edges up to 5.1%. Wage growth is also expected to cool from 3.7% to 3.0%. With inflation remaining elevated, the OBR expects no real earnings growth in 2027 or 2028. Conditions are expected to improve gradually thereafter as inflation and energy prices ease, supporting a recovery in growth, real wages and employment.
Your First Home scheme
While housebuilders might have liked the scheme up and running sooner, today’s details suggest Your First Home will prove highly popular with first-time buyers, particularly in a high-interest-rate environment. The income and price caps have been set at levels which shouldn’t lock out many buying their first home. Funding for 70,000 loans could be used up within the first five years, potentially putting the Chancellor under pressure to extend funding to keep the scheme running.
Learning lessons from Help to Buy:
Help to Buy showed how support for buyers could also help housebuilders. Its scale set it apart from earlier schemes: nearly 400,000 loans helped first-time buyers after the 2007 downturn and supported construction. At its peak, Help to Buy accounted for roughly a third of all new home sales.
Initially at least, Your First Home will be a smaller scheme, with £4.7bn of funding for 70,000 homes over five years. That is well below the £24.7bn lent over 10 years under Help to Buy. But with broad eligibility and relatively high interest rates, the Chancellor may face pressure to fund more buyers if the initial allocation runs out quickly.
Broad eligibility was key to supporting housebuilding. Your First Home follows Help to Buy with house price caps which sit above average values for each area, allowing buyers to choose from a range of new homes across the country. Meanwhile, the relatively high income caps mean that only around 2% of first-time buyers would be excluded from Your First Home.
The long-term benefits of homeownership:
Our analysis shows that Help to Buy purchasers now own an average of 40% of their home’s value outright, known as equity. Even those who bought flats or purchased towards the end of the scheme, and have seen limited house price growth, have generally built up equity they would not have gained by continuing to rent.
What’s happened to the Help to Buyers?
That progress has come at the cost of higher monthly mortgage payments. Average payments have risen by 60%, from £736 when buyers first purchased a new home using Help to Buy to £1,219 today, as interest rates have increased and buyers have paid off their equity loans. While this is a larger increase than renters have faced, these households benefited from a 20% equity loan that was interest-free for five years. Over the longer term, their monthly housing costs are likely to stabilise, or fall from current levels, as mortgage rates decline.
Your First Home will launch into a market with relatively low house price growth. Even so, evidence from Help to Buy suggests households can still build equity over time. Despite higher interest rates and limited price growth, most are likely to be better off than if they continued renting over the long term.
Striking the right balance:
The price and income limits for Your First Home appear to strike a balance without being overly restrictive. While full local authority and regional price caps have not yet been published, the examples for Inner & Outer London suggest caps sit close to average values in each area and are unlikely to lock out too many first-time buyers. 65% of new homes sold in Outer London last year would fall within the cap, alongside 45% of new homes sold in Inner London.
Larger new build houses may fall outside the house price cap. But given that the scheme is designed to support first-time buyers, this isn’t unreasonable.
Similarly, the income caps exclude very few would-be first-time buyers. Just 2% of first-time buyers so far this year had a household income above the scheme’s limit (rising to 4% in London).
With interest rates higher, confirmation that the first five years of the loan will be interest-free is likely to make the scheme highly attractive to first-time buyers. Similarly, capping charges in year 6 and from year 7 onwards at 3% could reduce the incentive to pay off the loan if mortgage rates remain near current levels.
First-time buyer ISA to replace Lifetime ISA
A new ISA for first-time buyers will be available from April 2029. It follows a similar structure to the existing Lifetime ISA, with the government offering a 25% bonus on annual contributions of up to £4,000, worth a maximum of £1,000 a year, towards a qualifying property worth up to £450,000. The key differences are that the new ISA cannot be used for retirement savings and the government bonus will be capped at £20,000 over a saver’s lifetime.
There are also changes to the Lifetime ISA. From 29 October 2026, first-time buyers purchasing a qualifying property worth more than the £450,000 cap will face a reduced 20% withdrawal charge, rather than 25%. This effectively removes the government bonus while protecting the saver’s original contributions. For example, someone who contributed £4,000 and received a £1,000 government bonus would withdraw £4,000 after the charge.
Property Income Tax rises again
From April 2027, the tax rates applied to property income will rise by four percentage points compared with today. The previous Chancellor had announced a two percentage point surcharge, creating new property tax rates of 22%, 42% and 47%. The government has now doubled that surcharge, taking the basic, higher and additional property income tax rates to 24%, 44% and 49% respectively in England, Wales and Northern Ireland. Relief for residential mortgage finance costs will also be calculated at the new 24% property basic rate.
Although landlords cannot deduct residential mortgage interest directly from their taxable income, they currently receive a tax credit equivalent to 20% of their finance costs. This credit will rise to 24% alongside the property basic rate, cushioning part of the increase. Even so, our modelling suggests that the average mortgaged landlord’s income tax bill would rise by around £140 a year, twice the £70 increase implied by the original two percentage point surcharge.
WHAT IT COULD MEAN
For many landlords, the direct increase may look relatively modest. But it comes on top of the longer-term squeeze on returns from higher mortgage, maintenance and regulatory costs.
The change also widens the tax gap between personally and company-owned rental property. Limited companies can deduct mortgage interest as a business expense before corporation tax is calculated, although transferring an existing property into a company can trigger both Stamp Duty and Capital Gains Tax. Incorporation will therefore not work for everyone, particularly landlords considering selling in the short to medium term.
Recent trends suggest much of the one-off restructuring of existing portfolios has already taken place. 41,483 buy-to-let companies were established during the first eight months of 2026, 8% fewer than during the same period in 2025, as fewer existing landlords transferred homes from personal into company ownership.
The latest tax rise could nevertheless prompt some landlords to revisit the sums. For those weighing up whether to remain in the market, the decision has become more complex. A higher tax burden and changing regulations mean landlords must weigh the returns from holding property against the practical and financial implications of restructuring or exiting.
That combination risks putting further pressure on investment in the sector. Landlords will respond differently, but a continued squeeze on returns could make some more cautious about expanding their portfolios and encourage others to reconsider their longer-term position. If the result is fewer homes available to rent, it could add further pressure to rents.
