The Budget briefing

Chancellor John Healey’s first Budget offered a clear message: create breathing space for businesses and households today, while building hope for the future. He talked about steering the country through the global economic storms of today and charting a new course for Britain in the years ahead.

But by historical standards, this was a quiet Budget, with reassurance taking precedence over ambition. Behind the announcements lay a need to reassure financial markets, where concerns over the scale of government borrowing have fed through to higher borrowing costs.

Housing was no exception. We were given further detail on the new Your First Home scheme, which should help more first-time buyers purchase new homes and give housebuilding a boost. But in a rabbit out of the hat moment, we learnt that there was to be an additional 2% rise in property income tax, on top of the 2% announced by Rachel Reeves last year. This is to take effect from April next year.

For the wider housing market, however, the Budget was relatively light on measures likely to materially change the picture. Your First Home should support first-time buyers and new-build sales, but there was little aimed at encouraging existing homeowners to make their next move. The bigger policy ideas appear to be on hold until Healey and Prime Minister Andy Burnham set out their 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.

OFFICE FOR BUDGET RESPONSIBILITY (OBR) ECONOMIC FORECASTS

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%, and with inflation remaining elevated, the OBR expects no real earnings growth in 2027 or 2028. Conditions are expected to gradually improve thereafter as inflation and energy prices ease, supporting a recovery in growth, real wages and employment.

Your First Home scheme

While house builders might have liked to see the scheme up and running sooner, today’s details suggest Your First Home will be a highly popular product for 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. This could see the funding for 70,000 loans 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. Much less than the £24.7bn lent over 10 years under Help to Buy. But given Your First Home's relative openness, coupled with relatively higher interest rates, the Chancellor may face pressure to provide more money to support more buyers if the initial allocation runs out quickly.

Broad eligibility had been key to supporting housebuilding. Your First Home has followed 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.

That progress has come at the cost of higher monthly mortgage payments. Average mortgage payments have risen by 60%, from £736 when they first bought new 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.

While Your First Home will launch into a market with relatively low house price growth, evidence from Help to Buy suggests households can still build equity over the long term. Despite higher interest rates and low house price growth, for the most part, these households are likely to find themselves better off than renting over the long term.

Striking the right balance: The price and income limits for Your First Home look to have been pitched so they are not overly restrictive. While full local authority and regional price caps have not yet been published, the examples for Inner & Outer London suggest caps have been pitched 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, however given that the scheme is designed to support first-time buyers, this isn’t unreasonable.

Similarly, the income caps have been set at a level which freezes out very few would-be first-time buyers. Just 2% of first-time buyers so far this year had a household income which would sit outside the income limit of the scheme (rising to 4% in London).

In a higher interest rate environment, the 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 disincentivise paying off the loan if mortgage rates remain near current levels.

First-time buyer ISA to replace Lifetime ISA

A new ISA aimed at 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.

Average landlord’s tax bill

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 appear relatively modest. However, it comes on top of the longer-term erosion of returns from higher mortgage, maintenance and regulatory costs.

The change also further widens the tax difference 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. This means incorporation will 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.

Nevertheless, the latest tax rise could prompt some landlords to revisit the sums. For those weighing up whether to remain in the market, the decision has also become more complex. The higher tax burden comes alongside a changing regulatory environment, meaning landlords must increasingly weigh the economics of holding property against the practical and financial implications of restructuring or exiting.

That combination risks putting further pressure on investment in the sector. While not every landlord will respond in the same way, a continued squeeze on returns could make some more cautious about expanding their portfolios, while encouraging others to reconsider their longer-term position. If that leads to fewer homes being available to rent, it could also add further pressure to rents.