House prices in October showed modest growth, with a 0.1% rise month-on-month and an annual increase of 2.4%, according to Nationwide’s latest house price index. However, the annual growth rate has slowed from 3.2% in September, with the average property price now standing at £265,738. Experts warn that the recent Budget could bring further challenges for buyers and landlords, particularly as mortgage rates climb and stamp duty changes come into effect.
Budget pressures and cooling house prices
Sarah Coles, head of personal finance at Hargreaves Lansdown, suggested that the Budget has added strain to the property market. “The Budget is set to cause more property woe,” she said. “It played a role in the slowing of house price growth – even before Rachel Reeves stood up. Now the speech has landed, it could mean more failed transactions, more buyers put off by higher stamp duty, and more being priced out of a purchase by rising mortgage rates.”
Coles noted that landlords, anticipating a potential capital gains tax increase, had rushed to sell properties ahead of the Budget. However, instead of a CGT increase on residential property, the Chancellor announced a hike in the stamp duty surcharge for second homes from 3% to 5%, adding an estimated £4,000 to the cost of a typical purchase. This change could prompt landlords to reconsider sales they had initially planned to complete.
Stamp duty changes likely to impact buyer behaviour
The upcoming end of the stamp duty holiday in March 2024 is expected to spur a surge in transactions as buyers race to complete purchases before thresholds revert. Introduced in the mini-Budget, the holiday currently allows first-time buyers to pay no stamp duty on the first £425,000 of property value, up from £300,000, with the exemption applying to properties worth up to £625,000. Existing homeowners also benefit from an increased threshold, doubled from £125,000 to £250,000.
Marc von Grundherr, Director of Benham and Reeves, commented: “A slower rate of house price growth was always to be expected during a Budget month as the housing market pauses for breath to see what the government has up its sleeve.” He added that the looming stamp duty change will likely drive higher levels of activity until March.
Mortgage rates set to rise further
The Budget’s borrowing plans have had an impact on gilt yields, driving them above 4.5% for the first time in a year and putting upward pressure on mortgage rates. “Fixed-rate mortgages owe an awful lot to bond yields, which drive pricing in the swaps market,” Coles explained. As yields rise, fixed-rate mortgage rates are expected to follow, potentially pricing some buyers out of the market. While increases won’t be as severe as those seen after the mini-Budget, mortgage rates are set to edge up in the coming days.
Variable-rate mortgages could also feel the effects, with rate cuts by the Bank of England now expected to be delayed. The base rate is still forecasted to hit 4% by the end of next year, though it may take longer to reach that point.
A stable outlook despite challenges
Despite the slowdown in price growth, industry figures remain cautiously optimistic. Ed Phillips, CEO of Lomond, pointed out that “stability has been the key component to the returning health of the UK housing market,” and expressed confidence that the market would regain momentum as further interest rate cuts become a possibility.
Verona Frankish, CEO of Yopa, echoed this sentiment, noting that “house prices have held firm during Budget month which is an impressive performance in itself despite the rate of growth seen falling month on month.” She added that while the end of the stamp duty holiday may push some buyers to act quickly, it is unlikely to create a market “cliff edge” in the new year.
For landlords, property investors, and homebuyers alike, the coming months present both challenges and opportunities. Rising mortgage rates and the end of stamp duty relief will influence buyer behaviour, but potential rate cuts may offer some relief. As the market adjusts, experts advise buyers to act while rates are relatively low, while landlords and investors should stay alert to new regulatory shifts that may impact future property investments.
Nationwide has released its house price index for October: Annual house price growth slows in October
