What the October 2026 Budget Means If You're Planning a Loft or Extension in London
By Anderson & the LCCL Construction Team | Finchley N3
John Healey delivered his first Budget on Wednesday afternoon. Nowhere in the speech did he say the words loft, extension or renovation. If you are a London homeowner weighing up whether to build next year, that is the first thing to understand about this Budget: it did nothing to you directly. What it did do was settle, for the next couple of years at least, several of the numbers that sit underneath that decision: what it costs to move instead, what money will cost, what wages and materials are likely to do, and what you will pay to heat the result.
We have been through the Budget document, the Treasury's own explainers and the Office for Budget Responsibility's forecast so you do not have to. This is not tax advice and it is not mortgage advice; we are builders, and for anything that touches your own tax return you should ask an accountant. It is, we hope, an honest account of what changed and what did not.
As LABC Building Excellence Award Winners 2024 for Best Residential Extension in London — and London Regional Winners again in 2026 for Best Conversion or Alteration to an Existing Home — we price lofts and extensions from Finchley N3 across London and Hertfordshire every week, so we read a Budget the way our clients do: through the lens of a project that has to be paid for. Not sure yet whether your own project needs planning permission?
Stamp duty did not move. That settles the sum for a lot of families
The loudest lobbying before the Budget came from the property industry, which wanted stamp duty cut or shifted from buyers to sellers. Healey ignored it. The thresholds are exactly where they were on Tuesday, which means a family in a three-bedroom terrace in Barnet or Haringey who wants a fourth bedroom still faces the same choice as before: pay stamp duty, agents, solicitors and removals to buy a bigger house, or build the bedroom in the roof of the one they already own.
The forecast that came out alongside the Budget sharpens that choice. The OBR expects house prices to rise by about 2% this year and 2.5% next, with roughly 1.2 million sales in 2026, 4% fewer than it predicted in March, and it blames higher mortgage rates. The average rate paid on outstanding mortgages is 4% this year and, on the OBR's numbers, heads towards 5% by 2031; by then it expects mortgage payments to take the biggest share of household income since 2009. A household on a cheap fix from 2021 that moves house re-borrows the whole amount at today's rates. One that stays and builds borrows only the cost of the work.
For comparison, a dormer loft conversion in London starts at £56,400 inc. VAT (£47,000 + VAT) and a single-storey rear extension at £42,000 inc. VAT (£35,000 + VAT) at the economy shell-and-plaster specification, design and build included; the ranges are on our loft conversion cost page and in the extension cost examples. Every figure is postcode dependent and the final one follows drawings and a survey. The one new buying scheme in the Budget, Your First Home, offers a 20% government equity loan from spring 2027, but only on new-build homes, so it has no bearing on anyone extending a house they already live in.
The numbers that will set next year's build costs
Two figures in the OBR's forecast matter more to a building project than anything Healey said. The first is inflation. CPI was 3.5% in September; the OBR expects it to peak at 3.8% in the first three months of 2027 and not get back to 2% until the autumn of 2028. The second is wages. The National Living Wage rises 3.9% to £13.21 an hour on 1 April 2027, and across the economy the OBR expects earnings growth to slow only gradually. Building is labour; a large part of what you pay for a loft is people's time. Materials have been calmer this year than in 2022 and 2023, but a 3.8% inflation peak is not a number that lets a builder hold a verbal price for six months.
The practical consequence is about paperwork, not panic. A price given in writing after a measured survey, with the structural engineer's calculations done, is a price that can be held in a contract. A figure quoted off a planning drawing cannot be, and in a year when costs are drifting upwards that gap tends to appear on the final invoice. Our guide to reading a building quote explains where provisional sums hide. On an LCCL contract the figure is fixed in writing once the survey and the engineering are done, and it includes the design, the planning or Lawful Development Certificate application, building control and party wall notices.
VAT on building work: no change, and no 5% rate for retrofit
The Budget document states plainly that there is no increase to the headline rates of income tax, National Insurance or VAT. Building work on an existing house therefore stays at 20% VAT, and new-build houses stay zero-rated. The construction industry has argued for years for a reduced 5% rate on energy-efficiency work and home improvements; it did not get it, and nothing in the document suggests it is coming. We quote every figure inc. VAT with the ex-VAT amount in brackets, so there is no surprise at the bottom of the page.
Energy: three measures that reach a renovated house
The Budget's cost-of-living package is where most of the money went, and three parts of it apply to a house that has just been extended or converted. The 0% VAT rate on household electricity, which started on 1 October, runs until July 2027 instead of ending in March; the Treasury puts that at around £50 off the Ofgem price cap from April. A one-off £100 Household Energy Payment goes into the bank accounts of households in council tax bands A to D in England from January 2027, paid automatically to anyone who pays by direct debit; many outer-London terraces and semis fall in those bands, while larger houses in Barnet, Hampstead and much of Hertfordshire sit in E and above and will not receive it. And Ofgem has been asked to abolish standing charges on gas bills from 2027, moving the fixed cost into the unit rate.
That last change rewards low gas use, and it is where a well-built loft or extension earns its keep. A loft converted or an extension built today has to meet the current Part L of the Building Regulations, which means insulation and glazing to a standard the Victorian walls around it were never built to. Our clients' heating bills are their own and we will not pretend to know them, but a house where the newest rooms are the best insulated is better placed when the standing charge disappears and the whole bill rides on how much gas you burn.
Landlords: tax on rental income rises from April 2027
The one measure that lands squarely on property is a tax rise. Last year's Budget added two percentage points to the tax on property income from April 2027; this one adds two more from the same date. From 6 April 2027 rental income is taxed at 24% at the basic rate, 44% at the higher rate and 49% at the additional rate. Healey's wording was that he was increasing the rates on income from property and savings by a further two percentage points. For a landlord weighing a loft conversion to add a bedroom to a let house, the rent still comes in, but a larger slice of it goes to HMRC, and how the cost of the work is treated against that income is a question for your accountant. Factor it in before you commit.
The £2 million council tax surcharge, for those near it
Nothing in this Budget altered the High Value Council Tax Surcharge announced last year. From April 2028, homes in England valued above £2 million, at 2026 prices, pay £2,500 a year on top of council tax, rising in steps to £7,500 above £5 million. In most of the country that is an abstraction. In Hampstead, Highgate, Totteridge or Hadley Wood it is a real line, and people sometimes ask whether an extension will tip a house over it. The honest answer is that the valuation is the government's and the thresholds are fixed at 2026 values, so the question is where the house sits now; a council's valuation, like its planning decision, is not something a builder can promise.
What this looks like on a real house
At Bohun Grove in East Barnet EN4 the house stayed and changed instead: a hip-to-gable loft conversion, a rear extension and the garden re-landscaped under one contract, which won the LABC Building Excellence Award 2024 for Best Residential Extension in London. At Weech Road in Hampstead NW6, a top-floor flat became a penthouse duplex through a loft conversion and alteration, the project that made us London Regional Winner in the 2026 LABC awards. In both cases the space arrived without stamp duty, an estate agent or a removal van.
Anderson's advice
The timing argument this year is stronger than usual. The paperwork on a loft or extension, from the measured survey and the drawings through the Lawful Development Certificate or planning decision, the structural calculations, building control and the party wall notices, takes eight to twelve weeks on a permitted development project and closer to sixteen on a planning application. Start that in November and you are on site in early spring, with the roof opened once the worst of the winter weather has passed and your price fixed in writing before the inflation peak the OBR has pencilled in for early 2027 has fed through to materials. Start in March and you are competing for the same spring start with everyone who waited.
Why homeowners choose LCCL after a Budget like this
One contract and one point of contact: our team surveys the house, draws it, obtains the certificate or the permission, engineers it, serves the notices and builds it, with building control inspecting throughout and a completion certificate at handover. The price is given in writing after the survey, inc. VAT, and every project carries a 12-month workmanship guarantee and a 10-year LABC structural warranty. No Budget changes that.
What our clients say
“We have used Lccl in the past for our rear house extension and have come back to instruct Lccl for our loft conversion too to our house in North London. As before we are very happy with the services from Lccl and we highly recommend their design and construction services for both home extension or loft conversion including both design and build services.”
— Mia M, Google Reviews
Frequently asked questions
Did the October 2026 Budget change stamp duty?
No. The thresholds and rates are unchanged, and the Chancellor did not adopt the industry's proposals to cut the tax or move it from buyers to sellers. The only new buying measure, Your First Home, is a 20% equity loan for first-time buyers of new-build homes from spring 2027, so it does not affect anyone extending an existing house.
Did VAT on building work change in the Budget?
No. The Budget document confirms no increase to the headline rate of VAT, so work on an existing home stays at 20% and new-build houses stay zero-rated. There was no reduced rate for home improvements or energy-efficiency work. LCCL quotes every figure inc. VAT with the ex-VAT amount in brackets.
Will building costs go up in 2027?
The OBR expects CPI inflation to peak at 3.8% in the first quarter of 2027 and the National Living Wage rises 3.9% to £13.21 an hour from 1 April 2027, so labour and materials are more likely to drift up than down. The protection is a price fixed in writing after a measured survey and structural design, which is how an LCCL contract is priced.
Get a figure for your own project
Not sure whether your project needs planning permission? Enter your postcode and tick what you want to build — we look up the conservation areas, Article 4 directions and listed buildings for you, and you see which parts are permitted development and the from-price for each. Lawful Development Certificate included on every permitted development job.
To book a free 30-minute consultation call about your loft conversion or extension, call LCCL Construction on 020 8037 7332 or get an instant estimate online — six questions, about two minutes, and you see a real range for your postcode on screen. Finchley N3 based, covering all of London and Hertfordshire.
One team, one contract, one point of contact — from first sketch to handover.
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