Following the announcement of the Autumn Statement, the UK’s housing market’s period of record highs is set to end – according to the Office of Budget Responsibility (OBR). The OBR predicts house prices will fall by around 9% between the end of 2022 and September 2024, followed by a bounce back of 2.1% growth between 2025-26. The OBR’s forecast on mortgage interest rates predicts highs of 5.0% in the second half of 2024 with a slight fall in average rates to 4.6% in 2028. Regarding house prices, the OBR predicts from 2025, that they will rise faster than the average income at an estimated 2.6% a year, followed by a house-price-to-earnings settling at around 7%. Jeremy Hunt also announced an end date of March 2025 to the Stamp Duty cut, introduced in the mini-budget.
One change made from the former government which remains in place is the plan to cut Stamp Duty in order to aid economic growth by allowing more people to move homes and provide first-time buyers with a better chance to get on the property ladder. However, these seem to have backfired as mortgages are becoming increasingly harder to obtain for first-time buyers. Moneyfacts said the number of all types of mortgage deals available in the UK had recovered slightly to 3,067, but still represents a substantial decrease from 3,961 on the morning of the mini-budget. Group Chairman of property tax experts Cornerstone Tax, David Hannah believes that the announcement of the tax-free allowance for Capital Gains Tax being cut will have a direct impact on the property market, as it could make property investment less desirable.
An increase in mortgage costs caused first-time buyer demand to fall 26% in October, the figures, released from Rightmove, shows that overall buyer demand fell 20% last month compared with a year ago as increasing borrowing costs and economic uncertainty is causing property buyers to put their property searches on hold. This comes after The Royal Institution of Chartered Surveyors (RICS) showed last week that housing market demand in the UK fell at the fastest pace since 2020 and encountered one of the largest decreases in more than 20 years last month. The survey also showed that new buyer inquiries fell for the sixth month in a row in October – from a 36% drop in September to a 55% decrease in inquiries this past October which represents the lowest figure since the 2008 financial crisis.
David Hannah, Group Chairman of Cornerstone Tax, comments on how the Autumn Statement will impact the UK property market:
“The announcements made in the Autumn Budget today from the chancellor Jeremy Hunt have been made to close the ‘£40-50 billion black hole’ in the UK’s economic situation. I think the changes announced will have a standout impact on the property market – specifically – the tax-free allowance for Capital Gains Tax (CGT) being cut. This would mean higher tax bills for second homeowners when selling their home, also making the UK property market less desirable for property investors. The announcement that the social rent increases will be capped at 7% next year is set to reduce social landlords’ rental income by nearly £5 billion over five years – the Chancellor said it will save the average tenant £200 next year.
There is still a real lack of supply within the UK property market which continues to affect not only buying but also renting. The current economic climate has made it harder than ever to save for a house deposit which means that renters – especially those under 30 are in danger of being stuck in the rental cycle for a while. Rental budgets are likely to be squeezed even further by landlords looking to increase rent to cover their increased mortgage costs.
“The announcement of the biggest interest rate hike in more than three decades recently will continue to add strain to homeowners. We are seeing a new level of unaffordable house prices in the UK property market, now becoming increasingly difficult to enter for first-time buyers. Even though the average price of a property is falling, the increase in mortgage rates and the decrease in availability of mortgages are significant problems.
“Renters will also feel the effects of the interest rate hike. They will find it more difficult to find available properties as landlords are set to experience higher mortgage rates which could deter them from renting their properties and look to sell instead. I think potential landlords will be more cautious when buying buy-to-let properties which will have a significant impact on the availability of homes in the UK.
