How Does the UK Budget 2025 Affect First-Time Buyers?
The UK Budget 2025, delivered on 26th November, brings a mixture of changes that will impact those saving for and purchasing their first home. Whilst some widely anticipated reforms to stamp duty did not materialise, several measures will affect deposit saving, property taxes, and long-term financial planning for prospective homeowners.
Stamp Duty: No Changes for First-Time Buyers
Despite months of speculation about potential stamp duty reform, Chancellor Rachel Reeves made no changes to the existing thresholds. First-time buyers continue to benefit from relief on properties costing up to £500,000, with no stamp duty payable on the first £300,000 and 5% on the portion between £300,001 and £500,000.
This means current stamp duty rules remain in place following the changes that took effect in April 2025, when temporary higher thresholds ended. For first-time buyers, this provides certainty when planning purchases, though it also means the upfront tax burden remains unchanged.
Changes to Cash ISA Limits
One of the most significant changes for those saving towards a deposit is the reduction in cash ISA limits. From April 2027, savers under 65 will see their annual cash ISA allowance cut from £20,000 to £12,000. The overall ISA allowance remains at £20,000, but £8,000 of this must now be allocated to investments such as stocks and shares ISAs.
The government's stated aim is to encourage younger savers to invest rather than hold large amounts in cash. Whilst this may offer higher long-term returns, it introduces more risk for those saving for a specific near-term goal like a house deposit.
Options for surplus savings:
First-time buyers who need to save more than £12,000 annually can either use the additional £8,000 allowance for investments, save surplus amounts in taxable accounts (basic rate taxpayers can still earn £1,000 in interest tax-free), or consider other tax-efficient options. Anyone aged 65 or over retains the full £20,000 cash ISA allowance, which may benefit older first-time buyers or those receiving financial gifts from parents and grandparents.
Lifetime ISAs Under Review
The Budget announced plans to replace the Lifetime ISA with a new, simpler product for first-time buyers. A consultation will be published in early 2026 to gather feedback on the proposed changes.
Current Lifetime ISA holders can continue using their accounts as normal for now. The existing scheme allows savers to contribute up to £4,000 per year with a 25% government bonus (up to £1,000 annually), but restricts use to properties costing £450,000 or less. The government has acknowledged criticisms of this £450,000 cap, which has remained frozen since 2017.
First-time buyers currently using a Lifetime ISA should monitor the consultation outcomes, as any replacement scheme may offer different benefits or restrictions.
The High Value Council Tax Surcharge
Budget 2025 introduces a new annual charge on properties worth £2 million or more from April 2028. This High Value Council Tax Surcharge (HVCTS), commonly referred to as the "mansion tax", will be levied in addition to existing council tax, with property owners (rather than occupiers) responsible for payment.
Charge structure:
| Property value | Annual charge |
|---|---|
| £2.0m to £2.5m | £2,500 |
| £2.5m to £3.5m | £3,500 |
| £3.5m to £5.0m | £5,000 |
| £5.0m and above | £7,500 |
Fewer than 1% of properties in England will fall within scope. To identify liable properties, the government will conduct a targeted valuation exercise based on 2026 property values, with revaluations conducted every five years. Social housing will not be in scope of the charge. The charges will increase in line with CPI inflation from 2029-30 onwards.
Indirect effects on first-time buyers:
Whilst most first-time buyers will never directly pay this charge, it may create market dynamics in high-value areas. Properties just below the £2 million threshold may become more attractive, potentially creating price clustering. For first-time buyers receiving financial help from family members who own high-value properties, the surcharge represents an additional ongoing cost (£50,000 over 20 years at the £2,500 rate, or £150,000 at the highest rate) that may affect their ability to provide assistance.
The government will launch a consultation in early 2026 on implementation details, including support schemes for those who may struggle to pay the charge, with the charge taking effect in April 2028. The surcharge is estimated to raise around £430 million per year from 2028-29 to support funding for local government services.
Cost of Living Support Measures
Several Budget announcements aim to reduce household expenses, potentially freeing up more money for deposit saving:
| Measure | Annual saving | Effective from |
|---|---|---|
| Energy bill reduction | Around £150 average | April 2026 |
| Rail fare freeze | Up to £300 (most expensive routes) | March 2026 |
| Prescription charge freeze (England) | Aggregate £12m for patients | April 2026 |
| Fuel measures | £89 per household with car | 2026-27 |
For first-time buyers, particularly those renting whilst saving, these measures could help increase the amount available for monthly deposits into savings accounts. The energy bill reduction is achieved through government funding of 75% of the domestic cost of the Renewables Obligation and ending the Energy Company Obligation, which is currently funded through bills.
Income and Property Tax Changes
Personal tax thresholds will remain frozen at current levels until April 2031, three years longer than previously planned. This means more people will be pulled into higher tax brackets as wages increase, a phenomenon known as fiscal drag. As salaries rise with inflation, more of your income becomes taxable or moves into higher tax bands, affecting mortgage affordability calculations which are based on post-tax income.
Additionally, from April 2027, new property income tax rates will apply. The property basic rate will be 22%, the property higher rate 42%, and the property additional rate 47%. This affects those considering buy-to-let investments or earning rental income from lodgers.
Electric Vehicle Considerations
From April 2028, a new per-mile charge (eVED) will apply to electric and plug-in hybrid vehicles, with average EV drivers paying around £240 per year (£20 per month). However, the government is providing substantial support to ease this transition:
- Additional £1.3 billion for the Electric Car Grant (extended to 2029-30), offering up to £3,750 off eligible EVs
- VED Expensive Car Supplement threshold increased from £40,000 to £50,000 from April 2026, saving over a million motorists £440 annually
- Extended funding for the Drive35 programme (£1.5 billion to 2035)
- £100 million investment in EV charging infrastructure, building on £400 million announced previously
For first-time buyers considering an EV purchase alongside homeownership, these measures provide both incentives and long-term cost clarity.
Additional Support Measures
The removal of the two-child limit on Universal Credit from April 2026 will lift 450,000 children out of poverty. For families with three or more children who are first-time buyers, this increased support could improve household finances and mortgage affordability. The government is also increasing the maximum amount of childcare costs that can be claimed through Universal Credit for families with three or more children.
The Help to Save scheme has been expanded to include Universal Credit claimants who receive either the caring element or the child element. This enables low-income households to save between £1 and £50 per month over four years, earning a 50% government bonus, providing an additional route to build savings for those on lower incomes.
Actions for First-Time Buyers
Review your savings strategy: With cash ISA limits changing in April 2027, assess whether your current approach remains optimal. Consider whether some of your savings could benefit from investment, particularly if you're several years away from purchasing.
Monitor the LISA consultation: If you currently use or are considering opening a Lifetime ISA, watch for the consultation in early 2026. The replacement product may offer different features more suited to your circumstances.
Factor in frozen thresholds: When planning your purchase timeline and budget, account for the impact of frozen tax thresholds on your take-home pay and mortgage affordability over the coming years.
Take advantage of cost savings: Use the household cost reductions from energy bills, transport, and fuel to boost your monthly savings contributions where possible.
Moving Forward with Confidence
Budget 2025 presents a mixed picture for aspiring homeowners. Stamp duty relief remains unchanged, providing certainty, whilst cost of living measures offer welcome support. However, the reduction in cash ISA limits introduces new considerations for deposit saving, and the planned replacement of the Lifetime ISA offers hope for a more flexible product better suited to today's property prices.
Success as a first-time buyer increasingly requires a balanced approach: maintaining accessible cash savings for your deposit and fees, whilst potentially considering modest investment of surplus savings to maximise long-term growth. The key is matching your savings strategy to your purchase timeline, risk tolerance, and individual circumstances.
