What Labour's general election win could mean for the property market

New Prime Minister Sir Keir Starmer has entered Downing Street with plenty of policies that could affect homeowners, first-time buyers and landlords.

Labour has come to power with a landslide majority at a time when interest rates remain high, stifling house price growth and property sales.

Delivering his first speech outside Number 10 after Labour's landslide general election win, Sir Keir spoke of the need for more affordable homes.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

There are hopes that slowing inflation will encourage the Bank of England to reduce interest rates and help lower the cost of borrowing in the coming months.

But government help may be needed when it comes to issues such as a lack of property supply and affording a deposit.

It may not all be good news for the property market though and landlords, who saw many of the perks of buy-to-let investing reduced under the Conservatives, could face new pressure under Labour.

Housing policies are unlikely to be confirmed until Labour’s first Budget later this year.

But here is what Sir Keir could have in store for the housing market.

Freedom to Buy

Labour’s flagship housing policy is the Freedom to Buy scheme.

It has pledged to help get 80,000 young people onto the housing ladder over the next five years by making the current mortgage guarantee scheme – due to expire in June 2025 - permanent.

Like the mortgage guarantee scheme, Labour said it would incentivise lenders to offer high loan-to-value (LTV) mortgages by acting as a guarantor for prospective first-time buyers who cannot afford a big deposit.

“This initiative seeks to offer more favourable mortgage terms, making it easier for young people to enter the housing market” says Nicholas Mendes, mortgage technical manager at broker John Charcol.

 “While Labour's housing and economic policies aim to support lower mortgage rates and greater accessibility for first-time buyers, the overall impact will depend on the market's perception and the successful implementation of their proposed policies.

 “From our current position, we do not expect to see the volatility of recent years. With inflation expected to near the Bank of England's 2% target, Labour will be in a fortunate position to be the government in power as mortgage rates continue a downward trend.”

Stamp duty changes

While it may be easier to get low deposit mortgages, more first-time buyers could end up paying stamp duty.

Labour has said it will reduce the first-time buyer stamp duty threshold from £425,000 to £300,000.

The allowance had been increased by the Tory Party in 2022 and was due to be reduced in April 2025.

The Conservative manifesto pledged to make the change permanent but Labour confirmed that the reversal will take place as planned.

This may push more first-time buyers into paying stamp duty, particularly around the South East of England and London where prices are often above £300,000.

Labour intends to increase the already higher stamp duty rate on purchases of residential property by non-UK residents by 1%.

It has also pledged to continue Tory plans to scrap non-dom status.

This may deter foreign investment but could boost domestic supply and demand.

Trevor Kearney, founder of The Private Office: Real Estate believes that the Labour party faces conflating policies as it is seeking growth while restricting investment from the super wealthy.

“While the UK was once seen as an attractive place to invest, live and work in, wealthy foreign individuals will now face the removal of rights to avoid taxes in their first four years of residency and avoid inheritance tax on foreign assets held in a trust,” he says.

 "As such, we should expect to see a flurry of nom-doms forced out to other European countries, such as Switzerland and Italy. The knock-on effect of this will be significant – we’ve already seen what harm decisions such as the removal of VAT recovery for foreign tourists can do.

 “The Labour party needs to clarify and refine their pledges. Is a global crackdown on the super wealthy a bigger priority than attracting foreign investment and overseas money? With their aims engrained in growing the economy, the onus should rest with the latter.”

Housebuilding

The UK is well-known to have shortage of homes.

The Conservatives scrapped mandatory targets last year but Labour’s manifesto pledged to build 1.5 million new homes, which could boost supply and bring prices down.

That assumes that the government can get round green belt issues and tough planning departments.

“Such ambitious housing targets have historically been challenging to meet, and this is likely to be no different,” says Karen Noye, mortgage expert at wealth manager Quilter.

“Building 1.5 million homes within five years is an extremely tall order which will require significant resources, substantial investment and careful planning. Its success will also depend on the engagement and cooperation of local authorities, developers and the communities in which these new homes will reside.”

The rental market

Slowing rental growth has already led many landlords to question if buy-to-let is still worth it.

Legislation known as the Renters Reform Bill was going through parliament before the general election to scrap section 21 notices, known as ‘no-fault’ evictions.

The notices let landlords evict tenants without having to give a reason.

Labour’s manifesto said it would "immediately abolish Section 21 'no fault' evictions, prevent private renters being exploited and discriminated against.”

It comes as landlords have already been hit by restrictions on mortgage interest relief and extra stamp duty charges on additional property purchases.

Paul Shamplina, of campaign group Landlord Action, said Labour’s plans will be of “significant concern” within the landlord community.

 “An immediate ban on Section 21 evictions is not feasible without first addressing the current inefficiencies within the court system,” he says.

 “We now anticipate a further surge in the number of landlords serving Section 21 notices in the coming months. Landlords are likely to act pre-emptively to protect their interests before any legislative changes take effect.

 “At Landlord Action, we have already seen an increase in instructions for Section 21 notices as many landlords move to secure their rental income or prepare their properties for sale.”

Ben Beadle, chief executive of trade body the National Residential Landlords Association says that while it is important to protect tenants, it is vital that reform does “not make worse an already chronic shortage of rental properties to meet demand.”

Additionally, while Labour has pledged not to raise income tax, National Insurance, VAT or the headline rate of corporation tax, there are concerns that it could have its sights set on capital gains tax (CGT). 

Lowering the tax threshold or increasing the  CGT rate could bring another threat to landlord profits when exiting a buy-to-let portfolio.

 “This is probably the one area of uncertainty where we have had most enquiries from clients, says Gary Smith, Partner in Financial Planning at wealth management firm Evelyn Partners.

“Some who are most concerned about a possible CGT hike have been looking to dispose of assets, although in most cases this is bringing forward disposals that were already on the cards in the next year or two.”

Research by estate agency brand Jackson-Stops suggests a quarter of those who own more than one property and own them all outright are interested in a two-year temporary capital gains tax relief for landlords who sell to their existing tenants. 

Its analysis also found homebuyers believe a Labour rather than Conservative government would make homes more affordable.

“While a new government is now certain, much is still unknown about how much of Labour’s manifesto they will be able to implement, and how quickly," says Nick Leeming, chairman of Jackson-Stops.

“Significant policy changes have been lauded particularly around housebuilding and making home ownership more affordable.

“For buyers and sellers in the short term the market is likely to remain on the same trajectory as the first half of 2024, the knowledge that a change of government was coming has avoided a cliff edge or need for immediate changes to be made. 

"The property market can also take comfort in its resilience, having navigated changing governments and policy changes time and time again.”