A Budget with little room for manoeuvre

Chancellor John Healey will deliver his first Budget today while hemmed in by high government borrowing costs and the hefty tax increases announced by his predecessor Rachel Reeves.

Setting aside the details of Your First Home for a moment, a key test for the housing market will be whether Healey can deliver on his widely briefed "steady as she goes" Budget without prompting anything like the volatility that followed the infamous 2022 mini-Budget. 

Government borrowing hit £24.5bn in September, £1.9bn higher than forecast by the Office for Budget Responsibility (OBR). At an auction yesterday, 5-year government bonds worth £4.5 billion sold at an average yield of more than 5%, the highest since 2008. Analysts think Healey's headroom, the forecast buffer against breaching the fiscal rules in 2029–30, has shrunk to somewhere between £12bn and £15bn, down from the £23.6bn forecast by the OBR in March.

That's in part why addressing some of the country's most pressing problems will be kicked into the long grass, arriving either via a 10-year plan that Prime Minister Andy Burnham has said he will announce later this year or a broad spending review slated for next year.

Leading indicators

Inflation is rising and the Bank of England looks set to embark on a precautionary tightening cycle in November. Leading fixed-rate mortgage rates are locked stubbornly around 5%.

Weak demand, elevated costs and a heavy regulatory burden are prompting housebuilders to shrink their development pipelines. Registrations of new homes by developers, a good leading indicator of future housing supply, fell to 26,231 in Q3 2026, down 13% on the same quarter a year earlier, according to new figures from the National House Building Council (NHBC). Private sector registrations fell 8% to 18,359. 

Unsurprisingly, the government's manifesto pledge to build 1.5mn homes by 2029 is ‘effectively dead’, a senior government figure tells the FT. Ministers will be hoping that 'Your First Home', under which eligible first-time buyers in England can purchase a new-build home with a deposit of just 2.5%, will mark the beginning of a turnaround.

Price caps

We now have a good idea of what Your First Home will look like. The government had initially planned to implement a household income cap of £90,000 outside London and £110,000 in the capital, which would have excluded a couple comprising a nurse and a teacher both earning median salaries, according to the Times. It has since raised the thresholds to £110,000 outside London and £140,000 in the capital.

More worryingly for developers in London, ministers plan to impose a house price cap of £500,000, according to a separate report in Saturday's Times. That would exclude so many of London's new homes that the scheme would make little difference to housing delivery. Developers are currently building homes at roughly the rate at which they can sell them. Some 7,160 private homes started on site in London during the first three quarters, against approximately 7,070 new-home sales, according to Molior.

As we saw with the income thresholds, there may be a last-minute rewrite before the Chancellor delivers his speech at lunchtime today. Regardless, the pressure to turn around housebuilding in the capital is only going to grow as developers continue to down spades, pull out of the capital altogether, or struggle with councils resisting new projects.

Last week brought news via Bloomberg that British Land had paused the second phase of its 4,000-home project at Canada Water, citing elevated costs. That followed Landsec's decision to withdraw plans for 1,700 build-to-rent homes and more than 1,000 student and shared-living studios in Lewisham. 

Operational assets

Nationwide, investment in the build-to-rent sector accelerated in the third quarter, with £1.6 billion deployed, taking year-to-date volumes to £4.3 billion, according to new Knight Frank figures. 

While the headline numbers point to a liquid investment market, capital remains selective, with investors favouring opportunities that offer scale, income visibility and strong long-term fundamentals. Pricing remains a challenge which is prolonging negotiations in some cases. Prime yields for multifamily stock have softened by around 50bps over the summer. 

Single-family housing has been more resilient and led activity in Q3, accounting for 67% of quarterly investment across 11 transactions and attracting more than £1 billion of capital. Notable deals included Lloyds Living’s funding of a single family portfolio of nearly 1,000 homes from Barratt Redrow and Aberdeen Investments and Border to Coast Pension Partnership’s £400 million acquisition of a single family portfolio from Blackstone, one of the largest operational transactions completed this year.

Operational assets continue to attract investor interest. Approximately £600 million was deployed into operational stock during the quarter, equivalent to 38% of total investment, supported by two portfolio transactions worth more than £500 million combined. Stabilised assets have now accounted for 61% of year-to-date investment, reflecting both challenges in the funding market and investor demand for established income, proven operational performance and immediate scale. See the report for more. 

In other news...

Industrial Outdoor Storage (IOS) has traditionally occupied a relatively overlooked corner of the UK industrial property market. That is changing, writes Knight Frank's Claire Williams. 

Elsewhere – An English castle saved by an American pollster — yours for £5m (Times).