Property Investors can refurb to increase returns
The Labour government’s first Autumn Budget, led by Chancellor Rachel Reeves, delivered significant updates that will shape the housing market and property investment strategies in 2025 and beyond.
While there was help included for SME house builders and new affordable housing initiatives, the increase in Stamp Duty could impact property investors, landlords, developers and potential homebuyers over the next 12 months.
Our refurbishment finance expert, Sunny Panwar, who has more than 20 years’ experience in commercial finance as a broker, a lender and as a client, with her own property portfolio reviews some of the key headlines and outlines a strategy for growth in the face of rising costs.
Budget Summary
- Landlords and those buying additional homes now face a 5% surcharge on SDLT but relief, reductions and exemptions still exist to reduce your liability
- Rachel Reeves reaffirmed Labour’s pledge to build 1.5 million homes within this Parliament
- The Chancellor has allocated £5 billion for housing initiatives next year, including a £500 million increase in the Affordable Homes Programme aimed at delivering up to 5,000 additional homes
- An additional £3 billion will be made available to support small and medium-sized enterprises (SMEs) and the Build to Rent sector through housing guarantee schemes
- Right to Buy discounts will be lowered, and local authorities will now retain full proceeds from sales to help preserve current council housing stock
H2 Investment in housebuilding
In recognition of the ongoing housing shortage, the Chancellor Rachel Reeves made good on her promise to invest in housebuilding, with a £5bn investment announced for next year, along with £3bn of additional support to be given to SME housebuilders and the Build to Rent sector in the form of housing guarantee schemes to support the private housing market.
And, in a bid to speed up the planning process, the government has also committed an additional £46m of funding for recruitment and training in local planning authorities.
Furthermore, she pledged to add £500m to boost the existing Affordable Homes Programme, taking its total value to £3.1bn, which is claimed would deliver an extra 5,000 homes
H2 Brownfield Land Release Fund
Prior to the Budget announcement, the government also pledged £68 million, via the Brownfield Land Release Fund, to enable councils to unlock disused brownfield sites.
The funding will cover the cost of decontamination, clearing disused buildings or improving infrastructure such as internet, water and power, meaning councils can clear empty buildings, former car parks and industrial land to make way for new homes.
She also included a renewed focus on energy efficiency in the housing market by announcing investment in 3,000 energy-efficient properties nationwide.
Stamp Duty Changes
One significant policy shift from the Autumn Budget is an increase in the stamp duty surcharge on second properties.
The Chancellor unexpectedly announced an increase to the SDLT surcharge for those buying second homes from 3% to 5% with effect from 31 October 2024. Companies buying residential property for more than £1.5M will also have to pay an extra 2% rising from 15% to 17% with effect from the same date.
For properties valued between £250,001 and £925,000, the total stamp duty now stands at 10%.
Use our Stamp Duty calculator to work out your costs for purchasing additional property: https://www.stampdutycalculator.org.uk/
See the table below for SDLT updates.
As at 31st October 2024.
However, the Chancellor did not go ahead with a measure that was in the Labour manifesto. Non-resident buyers of residential property were expecting their surcharge to go up from 2% to 3%. This was not announced, but Ms Reeves has left the door open to further reforms later in the Parliament.
Understanding the impact of a rise in SDLT
The sudden increase in Stamp Duty Land Tax (SDLT), surcharge announced in Rachel Reeves recent budget has disrupted thousands of property transactions.
With immediate effect, stamp duty has added a staggering £7,000 to the cost of an average additional property purchase, which is based on a £350,000 purchase price for landlords.
With only 24 hours’ notice, some investors found their previously viable deals were no longer financially feasible.
However, this disruption has created unique opportunities for savvy property traders and investors who understand the available reliefs and exemptions.
The Commercial branch works with property tax specialist who together can save you significant cost when purchasing or transferring a property asset.
With more than 85 different relief, reductions and exemptions available to additional property buyers, it can significantly reduce your SDLT liability, if identified and applied correctly.
First-time buyers and home movers
First-time buyers and home movers will continue to benefit from raised stamp duty thresholds until April 2025, after which a reduction is planned. First-time buyers can currently avoid stamp duty on homes priced up to £425,000, and home movers on those up to £250,000.
From April 2025, thresholds will decrease to £300,000 for first-time buyers and £125,000 for home movers. Locally, this could create a rush to purchase homes before April 2025, especially for those seeking to maximise savings on stamp duty.
In additional support of first-time buyers, the Mortgage Guarantee Scheme has been made permanent.
No increase on Capital Gains Tax
While the government upped Capital Gains Tax for most assets from 10% to 18% at the lower rate, and from 20% to 24% at the higher rate, this includes furnished holiday lets but all other property investors will have been relieved that despite an expected increase in capital gains tax (CGT) on the sale of second homes CGT rates on residential property have remained at 18% and 24% for standard and higher rate taxpayers.
What next for property investors?
For landlords and property investors, increased costs may impact expansion, but incentives for energy efficiency could offset some expenses.
The immediate 2% increase in stamp duty on purchasing second homes, coupled with maintaining current capital gains on disposal appears to be encouraging disposal rather than acquisition, but for many investors there is still a way to grow a portfolio and defer these higher liabilities.
By leveraging current assets and either re-financing with better deals or re-investing and re-modelling a property with the help of refurbishment loans, landlords could still significantly increase the yield of a property portfolio despite the increase in costs.
Re-imagining property portfolios
Those planning on investing may now focus on boosting the yields of current property portfolios in other ways to compensate for the additional cost of purchasing an additional home.
Creating additional rooms on an existing footprint is one such way.
Whether you’re an established property developer with a large portfolio or a first-time investor undertaking their first property renovation, refurbishment loans can be an extremely useful source of short-term finance to help you get more out of your properties.
Refurb for bigger returns
Refurbishment finance, sometimes known as a refurbishment mortgage, refurbishment loan, or renovation mortgage describes a type of short-term loan that is available to fund light or heavy refurbishment works on a purchased investment property.
The type of refurbishment finance you need will depend on the type of proposed works to be carried out.
- Light refurbishment loans fund work that doesn’t need planning permission or building regulation checks and typically includes updates or refreshes to existing structures.
- Heavy refurbishment loans are available for properties when planning and building regulations are required. This includes structural works like an extension or a change of use, such as converting a 4-bedroom residential house into a 9-bedroom multi-occupancy home.
Given the Buy-to-Let property boom over recent years, a huge number of our clients have successfully grown their portfolios by using a very simple investment strategy of leveraging existing property to purchase new ones.
This means is that investors are still able to extract large sums from their property portfolio without incurring large CGT or SDLT bills. (As always, we urge clients to seek professional tax advice before making any decisions)
If you would like to know more about Refurbishment Loans, read our Refurbishment Loans FAQs or speak to one of our refurbishment finance experts.