This next Budget could “make or break” the financial outlook of the property market for the coming few years.
UK home buyers have returned to the market en masse over the past two years, fuelling a sustained recovery in housing sales. However, recent speculation over potential tax changes has begun to weigh on activity at the upper end of the market, according to Zoopla.
Buyer demand and the number of new listings for homes priced above £500,000 have fallen by four per cent and seven per cent respectively compared with a year ago, as some buyers start to adopt a ‘wait and see’ approach ahead of the November Budget.
House price growth has continued to slow over the last few months, down from 1.9% in December 2024 to 1.4% in August this year. The average UK home is now worth £271,000, an increase of £4,350 over the last year.
In London, the South East, South West, and Eastern England, higher stamp duty costs and affordability constraints are putting a damper on price growth, with these regions having seen the lowest growth in the country of less than 0.5%. However, these issues are less of a problem for buyers in other parts of the UK, helping to maintain stronger growth. Northern Ireland is leading the way with a significant 7.9% increase and the North West is seeing a solid rise of 3.1%.
The average estate agent now has 36 homes for sale, a 20% increase from 2023 and an eight per cent rise year-on-year. Additionally, the number of sales agreed continues to rise, up 3% year-on-year, as buyers look to capitalise on the autumn market. However, this recovery is facing headwinds from recent speculation over potential property tax changes.
Zoopla analysis reveals that buyer demand and new listings have both declined for homes priced above £500,000. Properties priced over £500,000 have seen a 4% drop in buyer demand and a seven per cent reduction in new listings over the last five weeks. Similarly, demand for homes over £1 million has fallen by 11%, while new listings are down by 9%. This is in sharp contrast to the rest of the market, where demand and supply remain stable.
With one in three homes currently for sale priced above £500,000, and eight per cent over £1 million, the impact of this speculation is most pronounced in high-value markets like London and the South East. While the wider, mainstream market remains resilient, the looming November Budget and the potential for new policies are creating a holding pattern for higher net worth buyers and sellers.
Average mortgage rates for a new five-year fixed-rate deal are currently between 4% and 5%, and homebuyers can now afford to borrow 20% more than they could six months ago for the same income. These adjustments have been a key driver of housing demand in recent months, particularly among first-time buyers and those in more affordable regions.
House prices are rising fastest (2.8%) in markets where average prices are below £200,000. In contrast, local markets with average house prices above £500,000 are experiencing static prices.
Outside of Northern Ireland, house prices are rising by over four per cent in five postal areas including Kirkcaldy (KY) to the north east of Edinburgh, Oldham (OL) in North West England, Tweeddale (TD) covering the eastern side of the Scottish Borders, Motherwell (ML) to the south of Glasgow and Llandrindod Wells (LD)in Wales, north of Cardiff.
Prices continue to register annual falls of one per cent across southern England led by second home hotspots like Bournemouth (BH), Truro (TR), Exeter (EX) and Torquay (TQ) alongside parts of central London (WC and EC). Council tax changes for second homeowners are seeing more homes listed for sale in areas that have a high concentration of second homes which is impacting house price inflation.
Commenting on the report, Richard Donnell, Executive Director at Zoopla, says “the housing market has experienced a sustained increase in market activity over the last 18 months as mortgage rates have stabilised. The market is on track for the most sales since 2022, but without rapid house price inflation.
Pre Budget speculation over possible tax change is a regular occurrence but this summer it has been bigger than usual which has led some buyers and sellers to delay home moving decisions for homes priced over £500,000. The wider market remains largely unaffected. Serious buyers should think twice before delaying as while the Budget is two months away it takes, on average, six to seven months to find a property and complete a sale”.
Forget tax raid on landlords
Leading economist Paul Johnson has joined forces with the NRLA to warn Chancellor Rachel Reeves not to impose new taxes on property investors.
Landlord leaders and a leading economist have warned the Government against short term tax grabs.
The follows rumours that Chancellor Rachel Reeves is reported to be considering raising tax from the PRS with various moves in next month’s Budget, including making landlords pay National Insurance.
But Paul Johnson, who until recently was Director at the highly influential IFS (Institute for Fiscal Studies), and the NRLA have joined forces to oppose tax hikes.
Johnson told the Listen Up Landlords podcast “the first myth to bust is the idea… that somehow landlords are under-taxed relative to owner-occupiers, which is complete nonsense.
If you make it more expensive to be a landlord, then there will be some combination of fewer landlords and higher rent.”
And he backed the policy announced recently by Conservative Leader Kemi Badenoch to scrap Stamp Duty.
He called it “the worst tax we have,” adding, “if I were Chancellor for the day, I would abolish it”.
Ben Beadle, CEO at the NRLA, says: “Ahead of the Budget the Government must heed Paul Johnson’s sage advice. Too often the way rental property is taxed is based on nothing more than topping up the coffers from one year to the next. Such knee jerk and short-term thinking is no way to run an economy.
What is needed is a consistent tax strategy that gives responsible landlords the confidence to invest in the decent long-term homes for rent that so many people desperately need.”
The Autumn Budget is “make or break” for the property market
The government’s Planning and Infrastructure Bill is looking to boost housebuilding, while Chancellor Rachel Reeves has been weighing up whether to radically change stamp duty, potentially turning it into a sellers’ tax to encourage more home purchases or replacing it with an annual tax on properties worth over £500,000.
Martyn said “since the last Budget, there’s been a lot of political development throughout the UK. If this next one is to be a success, it is paramount that the outlook of the property market is considered.
Housing is an incredibly influential financial tool that can be manipulated in order to meet government goals, but all changes have drastic implications on the economic outlook of the nation and the pockets of those who live in it.
There are a lot of possibilities being thrown around. Wealth taxes, adjustments to capital gains tax, and even changes to the way in which council tax is calculated – no matter what we see, I urge the government to strike a balance between what’s fair and what’s economically viable.
With so much political news coming out of the UK, the nation is on the world’s radar, and likely any changes made here will be reflected elsewhere. As such, this next budget will prove to be a pivotal moment in not just the UK’s financial trajectory, but the viability of property investment within the nation as a whole. Interest rates on mortgages are slowly coming down, which signals somewhat of a conclusion to the turmoil witnessed throughout ‘the COVID years’. But, one policy too far and the UK is at risk of being right back at square one.”
Since the last financial budget, the Bank of England’s base rate has fallen 1%. It’s unclear whether there will be one more cut to the base rate this year, which was only reduced by 0.25% to 4.0% in August.
Mitchell added “the drop in base rate is good news for the population. It has enabled those on the fence around buying a house or taking out a loan to take the plunge and put their financial plans into action.
If this Budget lands correctly, we shouldn’t see much disturbance in the base rate. But if not, things could start going in the opposite direction. A lack of confidence from investors may spook them and weaken the pound.”