Labour tax threat could derail housing market recovery - warning

A prominent financial analyst is warning that the hopes for a housing market resurgence over the autumn could be derailed by the government if it increases Capital Gains Tax.

There’s been widespread speculation about possible CGT rises in the October Budget, fuelled by comments from Chancellor Rachel Reeves. 

Now Sarah Coles, personal finance analyst at business consultancy Hargreaves Lansdown, says last week’s Bank of England base rate cut its likely to herald modest house price growth over the rest of 2024. 

But she warns that ”it’s not going to be a patch on the boom of recent years” and that any CGT change may put a lid on increases.

She says: “It's worth keeping an eye on buy to let investors, who will be getting increasingly alarmed by speculation over Capital Gains Tax rises. If Rachel Reeves boosts the CGT rate to match income tax, a higher-rate taxpayer would see their tax bill rise by two thirds when they come to sell. 

“There will be property investors who decide it's not worth this risk, and will sell up before any potential change comes in. If there are too many of them, it could create a glut of property for sale and keep prices down.”

Her comments follow the release of the latest house price data from the Halifax which says that in July UK house prices increased 0.8% over the month.

The average house price in the UK is now £291,268 - over £2,000 more than just a month ago. Annual house price growth is now running at 2.3% according to the Halifax. The only region of the UK to see a house price fall over the past year is now the East of England, down 0.4%. London is up 1.2% with the average home costing £536,052.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says the Halifax figures may be particularly encouraging for the housing market, as they actually reflect the situation before the Bank of England rate cut. 

He adds: The housing market is continuing to show its resilience. The recent drop in base rate is already having an impact in terms of generating new interest and accelerating existing transactions, even at a time when the market is usually on holiday. However, that fall was anticipated for such a long time that it has already been factored in by most buyers and sellers so we do not expect fireworks over the next few months, rather a steady uplift.”

Iain McKenzie, chief executive of the Guild of Property Professionals, comments: “The 0.8% monthly increase and 2.3% annual growth rate are encouraging signs, especially considering the economic challenges we've faced over the past year.  It's particularly heartening to see strong performance in regions like Northern Ireland and the North West, which have recorded impressive annual growth rates of 5.8% and 4.1% respectively. This regional variation highlights the diverse nature of the UK property market and the opportunities available across different areas.

“The recent Bank of England base rate cut and reductions in mortgage rates are positive developments for the market. These factors should help improve affordability for many potential buyers, especially first-time buyers who have been struggling to get onto the property ladder. However, we must acknowledge that affordability constraints and limited housing stock continue to pose challenges.

Amanda Bryden, Head of Mortgages at Halifax, states: “Last week’s Bank of England Base Rate cut, which follows recent reductions in mortgage rates, is encouraging for those looking to remortgage, purchase a first home or move along the housing ladder. However, affordability constraints and the lack of available properties continue to pose challenges for prospective homeowners.

“Against the backdrop of lower mortgage rates and potential further Base Rate reductions, we anticipate house prices to continue a modest upward trend throughout the remainder of this year.”

How The Housing Market looks in ever region of the UK

The new data from the Halifax shows that Northern Ireland continues to record the strongest property price growth of any nation or region in the UK, rising by 5.8% on an annual basis in July, up from 4.1% the previous month and the highest increase since February 2023. The average price of a property in Northern Ireland is now £195,681. 

House prices in the North West also recorded strong growth, up 4.1%, compared to the previous year, properties here now average £232,489. In Wales, house prices grew 3.4% to £221,102 and this is the highest price seen since October 2022.

Scotland saw a rise in house prices, a typical property now costs £205,264, 2.1% more than the year before.

The only region or nation to record a fall across the UK was Eastern England. Properties here now average £330,282, down -0.4% on an annual basis.

London continues to have the most expensive property prices in the UK, now averaging £536,052, up (+1.2%) compared to last year.