Budget 2026: what it means for development

The Chancellor backed demand and social housing, lifted biodiversity net gain on more brownfield sites, and left viability, stamp duty and the London planning system exactly where they were. For most owners, investors and developers in London and the South East the margins have moved; the decisions have not.

The surprise: biodiversity net gain lifted on brownfield

Your First Home was trailed for weeks. The brownfield change was not, and for London and the South East it is just as significant. Biodiversity net gain requirements are to be removed for more brownfield sites. The threshold has not been published, so the size of the change is not yet known, but the direction is clear.

Since BNG became mandatory in 2024, the 10% uplift has been a fixed cost that bears no relation to a site’s size or value. Sites of 0.2 hectares or less have been exempt since 6 August 2026, which took the smallest infill plots out. The gap was the next tier up: the brownfield site of between 0.2 and 2.5 hectares, delivering 10 to 60 homes, where a consultant’s report, an off-site unit purchase and a 30-year management obligation have together cost more than the margin on a house. Defra consulted in April on a targeted exemption for residential brownfield development with thresholds up to 2.5 hectares, and today’s announcement reads as the outcome of that consultation. We have seen sites in that bracket stall on BNG cost alone this year.

If the threshold lands near 2.5 hectares, this is the most useful supply-side change in the Budget, alongside the demand-side boost from Your First Home. It costs the Treasury nothing, it removes a cost rather than adding a subsidy, and it lands on exactly the sites London and the Home Counties need to bring forward: the SME brownfield scheme that the large housebuilders do not touch. Until the regulations are published, we would treat the saving as a sensitivity in any appraisal rather than a base-case assumption.

Your First Home: the scheme, the caps, and who it reaches

Your First Home replaces Help to Buy in England from spring 2027. The terms are a 20% government equity loan on a new-build home bought from a participating developer, a minimum deposit of 2.5% and a maximum of 15%, no interest for five years, and £4.7bn of backed lending, which Zoopla estimates will last about three years. Household income is capped at £110,000 outside London and £140,000 inside it. Participating developers contribute to the cost on a sliding scale designed to protect smaller builders.

The price caps decide who benefits. They are set by local authority median prices, with inner London capped at £650,000 and outer London at £500,000. In outer London £500,000 buys a two-bedroom flat. In Hertfordshire, Essex or Kent a local median cap is likely to sit between £350,000 and £450,000, which covers flats and the smallest houses and excludes most three- and four-bedroom family homes.

That shapes the effect. Flats are where sales have stalled over the past two years, and the scheme should clear a good part of that backlog from next spring. It should also give housebuilders the confidence to restart phases and rehire after a year in which redundancies ran across the sector, and that matters for the wider economy as well as for the industry. But much of the stock we have seen stuck in 2026 is family housing priced above the caps, and that stock gets no help.

Expect the familiar side effects: a quieter new-build market between now and launch as buyers wait, a price premium for new-build over second-hand in the same location, and pressure on appraisals to assume faster sales rates than a scheme may actually achieve. The caps will also be a design input. On a mixed scheme, the proportion of homes priced inside the local cap is now a viability question.

What was missing: stamp duty and viability

Two omissions matter more than most of what was announced.

The first is stamp duty. Nothing changed. It remains the largest single barrier to people moving, whether that is a couple downsizing out of a family home, a family upsizing into one, or anyone relocating for work. Helping first-time buyers is welcome, but first-time buyers are one end of a chain. If the rest of the chain does not move, the homes they want to buy do not come to market, and the family housing that is currently stuck stays stuck. A reform that cut the cost of moving for everyone would have done more for the market as a whole than any equity loan.

The second is viability. On 27 October, Ballymore, Barratt London, Berkeley Group and London Square published a joint response to the draft London Plan consultation. Their six asks were plain: extend the emergency measures, create a viability-tested route that developers can actually use, make policy proportionate, allow flexibility on private housing mix, stop double counting between Section 106 and CIL, and base the Plan on realistic assumptions. Not one of those points is addressed in the Budget.

That is the catch in everything else. Equity loans and BNG relief shift the margins on a scheme that already has consent. They do nothing for the scheme that cannot get one. London housing delivery is at a record low because the planning and viability system does not let schemes through, and the last fortnight has shown how far there is to go. Until that changes, the Budget’s housing measures will help the schemes that already have consent, flats and brownfield above all, and do nothing for the ones that cannot get one.

Owners and investors: three tax changes

Three measures touch anyone who holds property or owns a business rather than builds.

Rental income tax rises by a further two percentage points from April 2027, on top of last year’s increase. Reported rates are 24% for basic-rate taxpayers, 44% for higher-rate and 49% for additional-rate. The rise applies to property income generally, so commercial lets are caught as well as homes. On a unit letting at £20,000 a year with £8,000 of costs, that is roughly £480 a year more tax for a higher-rate taxpayer. Small per unit; across a portfolio, and alongside last year’s rise, enough to tilt hold-or-sell decisions and to raise the gross yield a refurbish-and-let scheme needs to clear.

Business Asset Disposal Relief is halved again. The lifetime limit was £10m until March 2020, was cut to £1m overnight, and is now £500,000. The rate, 10% for years, rose to 14% this April and is already scheduled to reach 18% from April 2027. An owner selling a business in 2027 pays 18% on the first £500,000 of gain and 24% above it. For the SME developer or consultancy owner who has spent twenty years building something to sell, this is the measure that bites.

Founders’ Relief is presented as the replacement: 10% capital gains tax on up to £10m of lifetime gains from 6 April 2027, for founders and early investors in companies with sustained high growth. The terms are out to consultation until 30 November. On the Treasury’s own description it is aimed at technology and scale-up businesses, and a property investment company or a professional practice is unlikely to qualify. The relief that used to be for every business owner has, in effect, been moved to a narrower group.

Unchanged: stamp duty, capital gains tax rates, inheritance tax, and the council tax surcharge on homes over £2m from April 2028 announced last year.

The wider picture

The rest of the Budget bears on development indirectly, through costs, demand and the cost of money.

What we would do now

Nothing in this Budget reverses the fundamentals of a scheme. It moves the margins, and the right response is to re-test rather than to wait.

1. Re-run the sales assumptions on any scheme selling to first-time buyers in 2027 or later, with Your First Home in the cash flow and the local price cap applied unit by unit. Rate, price and launch timing may all move, but only for the homes inside the cap.
2. Re-appraise any small brownfield site that stalled on biodiversity net gain cost. Carry the saving as a sensitivity until the threshold is published.
3. Update hold-or-sell and let-or-sell studies for the April 2027 rental income tax rates, with the client’s accountant involved. This applies to commercial units as well as homes.
4. Where a registered provider is the likely buyer of a site or of S106 units, re-open the conversation now. Their grant and VAT position has improved.
5. Put the 3.9% wage rise into any cost plan or tender return that runs past April.
6. For business owners planning an exit, take advice on timing before April 2027, when the Business Asset Disposal Relief rate rises to 18% on a £500,000 limit.
7. Keep watching borough viability policy rather than Treasury policy. For London schemes, that is still where the decision is made.

We will update this note when the Treasury’s full Budget documents are published, and if the planning detail adds anything.