What does the 2025 Autumn Budget mean for the housing market?

We break down what Rachel Reeves’ Autumn Budget announcement means for mortgages and the property market.

Key takeaways

• A new annual ‘mansion’ levy on high-value properties 

• Tax changes and freezes (including income tax threshold freezes)

• Pension salary-sacrifice changes and higher taxes on property income

• Energy bill cuts for millions of households

• Cash ISA savings to be restricted

• OBR predictions say UK economy will grow by 1.5% 

The moment we’ve all been waiting for has finally arrived – Chancellor Rachel Reeves delivered the 2025 Autumn Budget. Her message was clear: the government needs revenue. And it appears that part of it is coming from property. The new levy on high-value homes, combined with higher taxes on rental income and frozen income-tax threshold,s is likely to impact both homeowners and landlords, and create ripple effects across mortgage rates, housing demand, and rental prices.

Mansion levy

Following a revaluation of homes in bands F, G, and H, properties in England worth more than £2 million will face a yearly charge of £2,500 starting from April 2028. While those worth above £5 million can expect a yearly charge of £7,500. The Chancellor says this will be levied on owners and collected alongside council tax. 

This surcharge is expected to raise over £400 million by 2031, and will be charged on fewer than the top 1% of properties.

HMRC says the mansion tax will mean a ‘£2 million mansion doesn’t pay less tax than a family home’.

Property income tax hike

Reeves said, “I will increase basic and higher rates of tax on property and savings income by 2 percentage points.” Adding that the wealthiest will contribute the most, and that 90% of taxpayers will not pay tax at all on their savings. 

This will come into effect from April 2027 and means that for landlords, the basic, higher and additional income tax rates on rental income will become 22%, 42% and 47% respectively.

What the budget means for landlords and buy-to-let

The extra 2% on property income tax could mean that many landlords will find their cash-flow squeezed – especially those with modest margins after mortgage payments and other associated costs. 

This could encourage landlords to raise rents or even consider exiting the market altogether. And in the longer term, this reduced supply of rental housing could lead to higher rents in general, particularly in high-demand areas.

For buy-to-let investors, particularly those relying on rental income to pay mortgages, it would be wise to run updated cash-flow projections and factor in the higher tax burdens.

Mortgage market and housing demand

The new tax updates could also reshape demand, borrowing, and mortgage-market conditions.

On the one hand, by raising long-term revenue, this Budget improves the government’s economic position. In fact, the Office for Budget Responsibility (OBR) forecasts a stronger UK economy – predicting growth of 1.5% this year, upgraded from the 1% forecast in March. However, between 2026 and 2029, the growth is then predicted to slow down to 1.5% from the previously estimateed 1.8%. 

Inflation is predicted to average at 3.5% this year, before falling to 2.5% next year and eventually returning to the government’s target of 2% in 2027.

These predictions could be beneficial for mortgage rates in the long term, offering a small reprieve for borrowers. 

On the other hand, if rents rise, some first-time buyers and movers may experience weaker affordability – especially coupled with general tax challenges driven by the frozen income-tax thresholds. This could apply further pressure on disposable incomes, reducing the amount people can borrow. Although many were hoping for it, the Budget unfortunately stopped short of introducing any Stamp Duty relief.

House price movement

According to PropertyMark, the average UK house price is still expected to rise from £260,000 in 2024 to almost £305,000 by 2030. Growth is then predicted to average 2.5% annually from 2026 onwards.

The biggest impact is likely to be seen at the top end of the market and the rental sector. 

High-end market:

• Homes above £2 million may see less demand, and some owners could be tempted to sell before the surcharge kicks in in 2028.

• We may see buyers in this threshold delaying purchases or demanding discounted prices to compensate for the new levy.

Mid-market:

• Wider affordability pressures, such as high taxes and potential rent increases, could reduce demand among first-time buyers and others reliant on wage growth.

Rental market:

• If landlords leave the market, rental supply could tighten. With higher costs to landlords, rents would rise slowly, squeezing affordability for tenants and first-time buyers hoping to save for deposits.  

Colleen Babcock, Rightmove’s property expert says, “The property market needs less taxation, not more, to encourage and enable movement. Today’s announcement of a Mansion Tax could lead to some distortion at the top end of the market, particularly as the implementation date draws closer. It may also have an impact across the rest of the market.”

Energy bill cuts

One potential compensation for the extra costs caused by tax pressures is a boost to household affordability from lower energy bills. The Budget cuts various green levies on electricity bills that were paid by consumers. As a result, typical households are now expected to save around £150 a year from April 2026.

This reduction could help ease cost-of-living pressures – especially for those saving for a mortgage deposit.

Cash ISA squeeze

One of the less mentioned but important measures in the Budget is a cut to the annual tax-free allowance on Cash ISAs. From April 2027, the maximum you can contribute to a Cash ISA each year will drop from £20,000 to £12,000 for most savers.

With the full allowances retained only for over-65s, this will reduce how much some younger savers can tax-efficiently put away for a deposit. It seems the government’s aim is to nudge people from cash savings into investments, which while more volatile, tend to offer higher long-term returns. 

Not sure what to do next? Contact The Mortgage Hut 

The Budget reshapes everything – from property taxes to rental income, and even how we save. Whether you’re a homeowner, landlord, or first-time buyer, the right guidance can make all the difference.