A mansion tax on properties worth more than £2 million and a reduction in the Cash ISA limit are among the Budget announcements likely to hit British homeowners.
The reduction in the cash ISA limit announced today by Chancellor Rachel Reeves has been rejected by many in the mortgage industry, who fear it will impact the amount of money building societies can lend to mortgage borrowers.
Chancellor Rachel Reeves presented her budget following an unprecedented leak, just half an hour earlier, of papers from the Office of Budget Responsibility (OBR). But it came after months of leaks and speculation, including rumors of income tax hikes and a barrage of property taxes.
Although there was no increase in income tax, the Chancellor extended the freeze on the income tax threshold until the 2028/29 tax year. The rumors of the National Insurance hit on landlords were also off the table, but we’ll see an increase in property tax.
However, two of the announced changes could have a knock-on effect on homeowners. And while it may seem obvious at first glance, experts fear this will have a knock-on effect on the property and mortgage market as a whole.
Mansion tax on £2m properties
The so-called Mansion Tax is in addition to council tax, meaning anyone with a property worth £2 million or more will have to pay £2,500 annually on their house. This will rise to £7,500 for homes of £5 million or more. The recurring charges will take effect from April 2028.
Although the tax is expected to raise £400 million in revenue by 2031 and will affect only a small proportion of homeowners, there are concerns that the impact could ripple through the rest of the housing market.
Nick Sanderson, CEO of Audley Group, said: “Opting to play with taxes at the top of the housing market is inherently risky. The top of the ladder is often the driver of market movement and the new housing tax will undoubtedly act as a brake.
“Larger family homes immediately become less attractive to potential buyers, especially in areas where house prices have risen significantly, such as the South East.
“The government had an opportunity to allow the housing market to function as intended. Instead, it has introduced counterproductive barriers that will block valuable properties, reduce transactions and put further pressure on the housing market.”
Analysis from property website OnTheMarket shows that 80% of these properties are in London and the South East.
Jason Tebb, president of OnTheMarket, said those hardest hit are retirees or long-term owners who bought their homes decades ago.
“The value of their property may have doubled or tripled, but their retirement income has not. They could now face tax bills that exceed their disposable income,” he said.
Cash ISA allowance will undermine mortgage lending
The Chancellor’s plans to cut the cash ISA allowance to £12,000, which would see £8,000 used exclusively for shares ISAs, were widely predicted before the Budget.
One of the main reasons why this hit the news was that building societies had raised concerns that this would have a serious impact on their deposits and impact on the amount of money they could lend to mortgage holders.
Rachel Reeves today announced that over-65s would continue to benefit from the full cash ISA benefit that now exists.
Currently, savers can invest up to £20,000 a year in their ISAs and, if they wish, the full amount can be paid in cash. But from April 2027 this will change for people under 65.
It has been a blow to the mortgage industry, with one broker, Craig Fish, serving as director London-based Lodestone MortgagesThe Newspage agency said it showed a “worrying lack of understanding of how the mortgage market works.”
He added: “Building funds rely on cash deposits to fund the lending that keeps key parts of the market moving, such as holiday rentals, expatriate pharmacies and borrowers with complex or adverse credit.
“Switch ISA cash allowances and you reduce the savings pools on which these lenders depend. Less money in means less money out, and that can only lead one way: tighter lending and potentially higher interest rates.”
Some investment experts were skeptical that this would have the desired effect of encouraging more people to potentially earn more in the long term by investing in stocks. Moreover, there were concerns that this would also affect those saving for a home.
Jane Sydenham, investment director at Rathbones, one of Britain’s leading asset and wealth management firms, said: “Reducing the Cash ISA fee is unlikely to make meaningful change when it comes to encouraging more people to invest – and certainly not in UK shares.”
She added: “Those using Cash ISAs are generally not choosing cash as an investment, but as a stepping stone towards short-term goals such as a home deposit, while benefiting from tax-free interest. Money squeezed out of Cash ISAs would likely end up in taxable savings accounts, rather than the stock market.”