Budget decisions that increase stamp duty on home purchases, raise the property tax on buying second properties, and lead to higher interest rates will impact the market, it has been suggested. Speculation around changes ahead of the Budget was key in reducing the annual rise in property prices from 3.2 per cent in September to 2.4 per cent, according to Nationwide Building Society.
Experts at investment firm Hargreaves Lansdown warn that the fall-out from the Budget will significantly affect future prices and sales. The Chancellor has decided that the nil rate for paying stamp duty on a home will drop from £250,000 to £125,000 from April 1.
This reverses temporary concessions – a stamp duty holiday – on the property sales tax introduced by the last Conservative government. The decision means that anyone purchasing a property over this amount could face paying up to £2,500 more in stamp duty land tax.
At the same time, the threshold rate at which first-time buyers do not pay stamp duty will fall from £425,000 to £300,000. If a first-time buyer purchases a property at the average UK price of £370,759, they will pay £3,538 in stamp duty from March 2025, compared with nothing now.
First-time buyers in parts of London and the south east could be faced with a stamp duty bill of as much as £15,000 as a result of the decision by Rachel Reeves. The move is predicted to create a rush to buy – particularly among first-time buyers – ahead of stamp duty increases on April 1.
The Budget has introduced an immediate increase in stamp duty for those purchasing second homes or investment properties, raising it from 3 per cent to 5 per cent. This move has led to a pause or cancellation of property purchases by various buyers, including buy-to-let landlords.
Financial experts anticipate that the Budget’s decisions, which include higher borrowing and employer taxes, will likely result in marginally increased UK inflation and interest rates over the next few years. Consequently, while mortgage rates are expected to decrease within the next year, the reduction may not be as significant as previously thought. Sarah Coles, Head of personal finance at Hargreaves Lansdown, cautioned: “The Budget is set to cause more property woe.”
She noted that the anticipation of the Budget had already begun to slow house price growth even before Rachel Reeves’ speech. Following the announcement, there could be further impacts such as more transactions falling through, potential buyers deterred by the increased stamp duty, and others being priced out due to climbing mortgage rates.
Coles also mentioned: “Landlords rushed to sell ahead of a speech they thought would contain a capital gains tax rise for investment property. It meant that extra buyer demand resulted in more sales rather than price rises.”
“The speech did come with a blow for these landlords – but not the one they were expecting. Residential property escaped the capital gains tax hike, while the stamp duty surcharge for second properties rose from 3 percent to 5 percent. Nationwide says this could add £4,000 to the cost of a typical purchase.”
“It could mean landlords back out of sales that were yet to complete, on the grounds that tax on sales has remained the same, and if they wanted to buy back in later, tax on purchases has risen. The additional stamp duty for landlords may well damage that corner of the market. However, the end of the stamp duty holiday is likely to have a far more far-reaching effect.”
“The fact it wasn’t extended in the Budget means stamp duty is being hiked more generally at the end of March. This holiday was ushered in by the mini-Budget, and means there’s no stamp duty for first-time buyers on the first £425,000 of a property’s value – up from £300,000. This applies to all homes worth up to £625,000 – up from £500,000. For existing owners, the threshold was doubled from £125,000 to £250,000.”
“The end of the holiday is likely to mean a rush of purchases early next year, to get in ahead of the change, so we could see prices rise at that point as buyers bring forward their plans. Once the higher rate kicks in, we could well see some of that unwind.”
Discussing interest rates, she commented: ” The bond market hasn’t loved the level of borrowing baked into the Budget, so the markets are asking the government to pay handsomely for the privilege. Fixed rate mortgages owe an awful lot to bond yields, which drive pricing in the swaps market, where banks swap variable rates for fixed ones. As the yield rises, so fixed rate mortgages will too. It means we can expect mortgage rates to climb in the coming days.”
She also noted, “This is very unlikely to be the kind of eye-watering hikes we saw in the wake of the mini-Budget, but they will increase. And now that prices have returned close to the peak, it may well mean more buyers are priced out of the market.”
On the topic of variable rate mortgages, she said, “Variable rate mortgages are also set to suffer. The market is still expecting the Bank of England to cut rates in November, but it’s less likely in December now, so anyone who was planning to buy with a variable rate deal on the grounds it would get cheaper soon needs to be aware that this may take longer than they expect. The Bank of England base rate is still expected to be 4% by the end of next year, but it’s unlikely to get there in a hurry.”
“When the immediate future looks difficult, it can be easy to put house-buying plans on hold, but if you’re just starting on the road to buying a place of your own, don’t be tempted to hold back. Prices may well fluctuate, but over the longer term they tend to rise, so if you want to get onto the property ladder, it’s worth doing whatever you can, as soon as you can afford to do so.”