A Labour Victory: What Does it Mean for the UK Residential Property Market?
Watch what the government says over the summer and what it does in its first Budget later this year
9 minutes to read
The Labour Party has won the 2024 general election with a forecast majority of around 170 seats.
However, while its victory is broad, it is also shallow, as veteran pollster Sir John Curtice explains.
So, what should the property market expect in the first six months of a Labour administration?
One general point to make is that a combination of inexperience and instinctive caution means the new government is unlikely to make big decisions quickly.
There will be no mini-Budget moment, avoiding the type of adverse reaction on financial markets and spike in mortgage rates seen after Liz Truss took power in September 2022. There has been minimal reaction on markets so far, which had expected a Labour victory.
We will get a clearer sense of its plans in the autumn Budget once the Office for Budget Responsibility has examined its numbers. An even fuller picture will emerge at the spring Budget in 2025. Until then, we will have to rely on what Labour says to anticipate what its victory means for the UK housing market.
You can see what all the main parties said about housing during the election campaign here, but how might Labour’s plans take shape now they are in government?
Stamp Duty, House Prices, and Transaction Volumes
Labour has said the nil rate band for stamp duty will revert to £300,000 from the current temporary level of £425,000 in April next year, which is probably not the news first-time buyers will want to hear. The Tories had planned to make the tax break permanent.
On the other hand, Labour has said it will make it easier to secure a deposit under a so-called Freedom to Buy scheme. It would essentially be an extension or rebrand of a plan started under the Conservatives so unlikely to boost demand in a meaningful way.
The Labour manifesto also said overseas buyers will pay an extra 1% stamp duty surcharge, highlighting the tightrope they will be walking between attracting and deterring overseas capital as it seeks to be a government of wealth creation.
Neither pledge on its own is likely to have a significant impact on transaction volumes or property prices. For a better understanding of what will happen in the UK housing market during the second half of this year, it will be more useful to study the next inflation data on 17 July and whether it signals a rate cut sooner rather than later, as explored here.
Conclusion: What happens next to mortgage rates will have a bigger impact on the UK housing market in 2024 than Labour’s previously announced changes to stamp duty or a rebadged mortgage guarantee scheme.
Non-Doms
The balancing act between attracting and deterring wealth will be equally tricky when it comes to the issue of non-doms – the 68,800 individuals living in the UK who are non-domiciled and don’t pay tax on their worldwide income.
We know the old system will be replaced but not much more.
For example, there was no detail in the Labour manifesto about the number of years individuals would be exempt from paying tax on their worldwide income under the new regime. Nor was there much detail around how inheritance tax (IHT) would be charged on overseas trusts. To backdate any new IHT legislation would be unusually punitive and logistically complex.
“New legislation could appear in the Finance Bill in March 2025 ready to take effect from 6 April 2025,” said James Quarmby, a partner in the private wealth team at law firm Stephenson Harwood who expects Labour’s first Budget to be in October. “However, the inheritance tax position, particularly relating to trusts, is a really difficult nut to crack in such a short time-frame, so there is every chance this will get pushed back until 2026.”
Quarmby believes Labour won’t want to scare wealthy individuals from the country.
“Irrespective of what politicians say during an election campaign, being in government is completely different and I expect a Labour government to proceed with caution. There will be scope to finesse the non-dom legislation so that it broadly meets their campaign promises, but at the same time remains business-friendly," he said.
In relation to the non-dom rules more generally, Nimesh Shah, chief executive of tax advisory specialist Blick Rothenberg, said: “There has been more backlash than expected, and there is a suggestion that Labour may be willing to engage on a new policy approach, which could mean the introduction of the new regime being delayed. However, we don’t know Labour’s appetite on improving the current proposals, which are a real mess and need a lot of work.”
Conclusion: Keep an eye on the small print and timing, new non-dom rules are far from set in stone.
Housebuilding
Politicians from all sides routinely over-estimate their ability to influence the numbers of houses built in the UK, and this election campaign was no exception. Labour has said it plans to deliver 1.5 million over the course of the next Parliament.
Housebuilding is largely demand-led, which is driven by economic cycles not the bandwidth in the planning system. Despite the rhetoric, the government doesn’t build houses.
Labour has indicated it will take early action to change the National Planning Policy Framework and restore housing targets. Such a shift in emphasis will be welcomed by developers but it doesn’t alter the fact private housebuilders deliver homes according to demand and at a price set by the second-hand market.
My colleague Oliver Knight will explore the party’s plans for the housebuilding sector, including the use of the greenbelt land, in more detail next week. For now, here is why he thinks delivering 1.5 million homes is unlikely.
Conclusion: Political ambition and economic reality will clash, with only one winner.
Renter’s Reform
This is another area with the potential for a clash between what is politically desirable and economically possible.
The risk for the lettings market is the introduction of policies that make it too financially punitive to become or remain a landlord, which could result in more owners selling up and higher rents.
The Labour Party will revive the abandoned Renter’s Reform Bill in some form and had previously said it would end no-fault evictions “on its first day in power”.
In an encouraging sign the party understands the picture is more nuanced, Angela Rayner recently told LBC: “That’s a simplistic way of looking at it. We also need to ensure the courts system is working and that we’ve got a fair balance between landlords and renters.”
Labour has also pledged to end so-called bidding wars, a policy based on the assumption that high demand and low supply is a permanent feature of the lettings market. As we are currently seeing at the higher-value end of the London market, rising supply means asking rents are rarely met at the moment.
Our latest rental value forecasts are here but the numbers could rise if economics takes a back seat.
Labour also appears to be adopting a more pragmatic approach to leasehold reform, rowing back on earlier plans to abolish the leasehold system in its first 100 days. How far and fast it goes will be dictated by how much of a priority the issue is.
Conclusion: Landlords and tenants will be hoping for new legislation that is as balanced as Angela Rayner’s recent comments. Unambiguously ruling out measures such as rent controls would help.
Other Taxes
While Labour has ruled out a formal “Wealth Tax”, revenue will be raised in other ways. We know private schools will be charged VAT (probably from September 2025), with the election campaign having turned into a game of Labour ruling out or refusing to rule out a list of other tax rises.
Capital Gains Tax (CGT) is one they have not ruled out increasing, in a potential further deterrent for landlords. However, they have said they will not apply CGT to primary residences.
Some expect to see CGT changes in the first Labour Budget, but others don’t.
“I'm not expecting a CGT rise this Autumn or anytime soon,” said James Quarmby. “Mainly because Labour front benchers have been saying 'there are no plans to raise CGT' in dozens of interviews. If the first thing they do when elected is to raise CGT, then it will look like they have been dishonest when campaigning. That would not be wise, even with a big majority.”
He also believes the final shape of new rules on private equity profits will be less punitive than originally expected.
Changes to inheritance tax have not been ruled out.
Conclusion: Nobody knows what Labour will do in its first Budget, but the party could lose credibility by going too far, too fast given what it has said about tax rises and the importance of wealth creation.
The Bigger Picture
The Labour Party has come into power at a fortunate moment in some ways, says Savvas Savouri, chief economist at QuantMetriks.
“Labour is inheriting an economy with building momentum. One not justifying a base rate cut but allowing the Office for Budget Responsibility (OBR) to cut its deficit forecasts and so warrant looser fiscal policy,” he said.
In other words, an improving economy might temper the need for tax rises.
While stubborn services inflation means the scope for a rate cut is more limited than thought at the start of the year, we are likely to see at least one cut of 0.25% before December, which will increase downwards pressure on mortgage rates after the summer. This would have provided a boost to the housing market irrespective of who won the election.
Labour’s victory also needs to be seen in the context of what is taking place in France and the US, said Savouri.
For example, elections in those two countries could strengthen the pound, which has implications for overseas investors in UK property, as we explore here.
Another outcome, particularly in light of the election result in France, is that a new UK government could agree improved relations with the EU.
“The EU has desperately needed a reason to get on better trade and travel terms with the UK,” said Savouri, pointing to a deal that could see a smoother relationship without the need to rejoin.
“If the Brexit deal that exists was the cause of the pound going down, just imagine what Sterling will do after such a renegotiation.”
Conclusion: An improving UK economic outlook and political change overseas could be a case of good timing for the Labour government.