Tax rumours and inflation concerns risk putting the brakes on buyer activity
House prices fell by -0.1% in August according to Nationwide. House price growth over the last three months was -0.4%, which has seen annual house price growth slow to 2.3%, down from 2.4% last month. This continues the pattern of decelerating house price growth which has persisted since the SDLT changes in April. We are forecasting this to continue, with just 1% house price growth in 2025.
How the market fares in the last four months of the year will be affected by speculation over new taxes on housing. Amidst a range of suggestions and rumours, reforms of SDLT and Capital Gains Tax (CGT) have been discussed as options to help the Chancellor balance her Autumn Budget on 26th November. The first of these is to replace SDLT with an annual land tax on properties over £500,000 (around a quarter of the market). We can expect this to cause short term uncertainty as buyers and sellers try to make sense of what it means for them without any guarantee of the outcome. That alone is likely to mean a dip in tax revenues in the run up to the budget, unless much more clarity is given. Secondly, there is a speculated CGT on main residences worth over £1.5 million. While this would impact only a small number of homes, heavily concentrated in London and the South East, uncertainty could weigh on buyer interest in these markets, while sellers may want to realise their gains before the new tax is implemented. For our more detailed take, plus the longer-term implications of potential changes, see our webinar.
With uncertainty likely to last until the Budget, sensible pricing will be key to securing a sale. The average time to sell a price-reduced property is 99 days, compared to 32 days for those without a reduction, according to Rightmove. The property market does not typically react well to uncertainty, and maintaining trust between buyers and sellers will be important.
Affordability continues to improve against this backdrop of uncertainty. The Bank of England Monetary Policy Committee voted to cut the base rate to 4%, its lowest rate since March 2023. In line with base rate cuts, mortgage rates have been gradually trending down, with the average 5-year fixed rate dipping below 5% for the first time since May 2023 in mid-August, according to Moneyfacts. Rates, however, remain sensitive to economic confidence. A recent spike in gilt yields to a 27-year high has sparked concerns that a knock-on effect could see mortgage rates rise again, which could knock both gains in affordability and buyer confidence.
Further improvements in affordability may take time, as the path of rate cuts during the remainder of 2025 has become less clear. The August MPC vote was marginal, indicating concerns over medium-term inflationary pressures. CPI increased from 3.6% in June to 3.8% in July and the economy grew by a surprisingly strong 0.3% in June. Oxford Economics now consider the chance of a further rate cut in 2025 to be 50:50, given recent comments by MPC members, high food price inflation and the higher-than-expected energy price cap rise announced by Ofgem for October.
More localised house price data from May shows that areas with the greatest value growth were in Scotland and the North, chiefly Clackmannanshire and North Lanarkshire, with prices up 9.0% and 8.6%, respectively. It is a mixed picture in every region, with some areas seeing rises while others experience falls. London shows the most extreme differences with Haringey and Merton having some of the strongest price growth (8.1% and 7.5%), while Kensington & Chelsea and Barnet saw significant falls (-4.3% and -3.9%).
Annual rental growth across the UK in July was 2.4% according to Zoopla, a slight deceleration from 2.7% in June. This comes despite RICS surveyors reporting an uptick in tenant demand.
Landlords’ most pressing concern in Q2 2025 was energy efficiency and meeting Minimum Energy Efficiency Standards, according to the National Residential Landlord Association. Currently, all rental properties much achieve EPC C or above from 2030, but there are worries over potential costs (and recouping these), available support, and timelines to achieve this. This, as well as the incoming Renter’s Right Bill and suggestions of levying National Insurance on profits, has renewed concerns about stock leaving the market.
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