Budget 2026 Lifts First-Time Buyers, Squeezes Landlords and Fuels Election Speculation

Assessing today’s Budget in isolation is a bit like judging a box set based on a single episode.

Storylines from previous Budgets are still unfolding and an early general election could be the plot twist.

Chancellor John Healey’s Budget included the kind of sweeteners you might expect before the country goes to the polls, including the Your First Home equity loan scheme for first-time buyers. However, Prime Minister Andy Burnham ruled out calling a general election in the next 12 months on Wednesday.

In the absence of any major property tax announcements, we could see a relief rally in the final months of this year, provided there is no further spike in mortgage costs due to the Middle East conflict.

It will also require election speculation to remain in check, even when Burnham sets out his ten-year plan before the end of the year.

Will a single-digit poll lead, a split right-wing vote and operating under the constraints of the 2024 manifesto prove too tempting for him at some stage before the summer of 2029?

“The Budget was very much in line with expectations, but it will set the hares running on speculation that an election will be called sooner rather than later,” said financial market analyst Michael Brown.

“The giveaways come now, the pain of departmental spending cuts is pencilled in for 2028 onwards, but an election before then allows you to change the funding methods and amounts with a new manifesto.”

Buyers Get a Lift

Under the £4.7 billion Your First Home plan, buyers can combine a 2.5% minimum deposit with a government equity loan of up to 20% on new-build properties. It aims to help 70,000 first-time buyers onto the property ladder and has income caps of £110,000 outside London and £140,000 in the capital, alongside local property price caps that climb to £500,000 in outer London and £650,000 in inner London.

“The price caps could still restrict take-up,” said Oliver Knight, head of residential development research at Knight Frank. “The impact of the scheme is likely to be greater in more affordable markets, where a larger proportion of new-build stock falls within the local thresholds. Where the scheme does increase demand, faster sales and greater certainty around absorption could improve development viability, support site starts and help unlock marginal schemes.”

The plan comes alongside a new First Time Buyer ISA from 2029 to help buyers save for a deposit, and reforms to Lifetime ISAs that make it less punitive to withdraw funds when buying a property above the current £450,000 threshold.

The Chancellor also announced:

-    A further £1.5 billion for social and affordable housing, taking total capital investment above £40 billion over the next decade.
-    Residential brownfield sites in England up to 1.5 hectares will be exempt from Biodiversity Net Gain requirements, reducing costs and planning

Less Welcome News

The news was less welcome for landlords, with income tax rates on property to increase by two percentage points from April 2027, to 24%, 44% and 49%. That is on top of similar increases announced last year, increasing the headwinds for a sector already grappling with regulatory changes and higher borrowing costs.

The Office for Budget Responsibility acknowledged the tougher market conditions, which we have set out in recent weeks.

For the five years to March 2031, it said:

-    Housing Supply: 190,000 fewer net additions to the housing stock than forecast in March, reflecting higher interest rates and rising development-related costs.
-    Transactions: 4% lower than forecast in March, due to higher mortgage rates and the lower forecast growth in the housing stock.
-    Property transaction taxes (including stamp duty): Just under £3.8 billion a year lower on average due to softer prices and fewer transactions.

It also said that house prices would grow by around 2% in 2026 and 2.5% in 2027, reflecting stagnating real incomes and higher mortgage costs.

Softer Market

The OBR figures underline how the Middle East conflict and resulting rise in mortgage rates have affected the outlook for the housing market.

Mortgage approvals have fallen in recent months, which will put downward pressure on transaction numbers in the final months of this year.

Last week also brought news that British Land has 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.

And what about the measures from previous Budgets that have yet to fully impact buyers and sellers?

The high-value council tax surcharge on English homes worth £2 million or more starts in April 2028, although there is now more clarity around the rules.

A deferral scheme will let owners with a household income of £35,000 or less, savings of £16,000 or less, or a household member who meets disability criteria delay payment until the property changes hands, at a “fair rate of interest”. Meanwhile, homes left substantially unfurnished and unoccupied for 12 months or more will face a 100% premium.

And, of course, the income tax threshold freeze to 2031 will continue to squeeze buyers.

The Budget also made no mention of an investor visa, a subject that we explored here. The government said instead that it will “continue to assess whether the residence-based regime is striking the right balance”.

Like any good box set, this story is very much to be continued.