Just as everything seemed to be falling into place for a surge in activity during September, Prime Minister Sir Keir Starmer warned that the 30th October Budget would be “painful.”
Unsurprisingly, since then, both buyers and sellers appear to have been holding back to see what the Budget will mean for their finances.
In reality, while the Budget will likely hurt for some, it won’t impact everyone the same, with top earners expected to bear the brunt of any tax changes.
We know from market speculation that an increase in Capital Gains Tax (CGT) is likely, along with VAT on private school fees and changes to inheritance tax.
However, for most, the Budget may not be as bad as they fear.
While there might be increases in fuel duty or changes to employers’ national insurance contributions, we’re not expecting any personal tax increases, such as a rise in income tax. And once – I hope – people realise it’s not as bad as they perhaps anticipated, buyers and sellers should start to feel more positive about moving.
We have, after all, the ingredients for a buoyant market, but the Budget warning has caused some hesitation.
The early post-Election cut to the Bank of England’s Base Rate (BBR) helped restore market confidence.
Combined with falling swap rates and lower mortgage rates – including 2-year fixes under 4% – we should be seeing more activity in the market than we currently are.
We tend to see a spike in interest when lenders reprice and lower rates, but what’s happening at the moment is the underlying market activity is simply shifting to whichever lender is offering the lowest rate – rather than motivating those who are on the fence about moving to take action. This is likely to change however once the Budget has been announced.
Even though BBR was held at 5% in September, and inflation held steady at 2.2% in August, there is a general expectation it will continue to be cut over the next 12 months which should further boost demand after the Budget.
Goldman Sachs – ever the optimists – are even predicting a drop to 3% by September 2025.
We are also now approaching a time where those who took out a two-year fixed rate after Liz Truss’s mini-Budget in Autumn 2022 will be ready to remortgage, with borrowers finding they may be able to secure lower rates now compared to back then.
What impact might the Budget have?
But what about the movers and sellers who will be impacted by the tax changes in the Budget? We’re already seeing reports of increased properties coming to market, potentially due to the anticipated rise in CGT.
Rightmove reports a 15% increase in the number of top-end homes – four- or five-bedroom detached houses or larger – coming to market compared to the same period last year.
This, it suggests, could in part be tied to fears of a CGT increase, as second homeowners look to sell.
Similarly, its figures show nearly one in five (18%) homes for sale were previously rented out, compared to just 8% in 2010.
In some areas, such as London, this figure is even higher, with almost a third (29%) of homes for sale having previously been rental properties.
It’s an interesting trend, as many landlords in recent years have moved to a limited company structure, with properties in limited companies protected from CGT.
What the figures could suggest is that smaller, so-called amateur landlords are increasingly seeking to exit and sell up, deciding that managing one or two properties is no longer worth it.
The concern, of course, is that these homes may not be bought by other landlords and therefore won’t re-enter the rental market, at a time when we desperately need more rental stock.
If we look for positives however, Rightmove’s data over the past twelve months shows a steady rise in housing stock coming to market across the board.
This means that once Chancellor Rachel Reeves has finished her Budget statement, we should see confidence return to the market, with a reasonable amount of pent-up demand and available stock to support it.
Simon Jackson is Managing Director of SDL Surveying
First Published with The Intermediary