Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, the online investment service, comments on the latest Halifax House Price Index.
Alice Haine, Bestinvest by Evelyn PartnersAnnual UK house price growth accelerated to 4.3% in the 12 months to August compared to July’s 2.3% uplift – the fastest pace of growth since November 2022, according to the latest Halifax House Price Index – a reflection of momentum returning to the market thanks to the quarter-point interest-rate cut at the start of the month and weaker prices a year ago.
The monthly figures were less robust with house prices edging up 0.3% compared to July’s 0.9% increase.
An uplift in the number of buyers in the market, whose affordability position has improved thanks to the combined effects of easing inflation, robust wage growth and the 25-basis point interest rate cut at the start of last month, which has helped to reduce mortgage rates, has delivered a confidence boost to the market.
Strong demand for properties is being matched by a surge in listings as sellers, previously sitting on the sidelines as they waited for market conditions to improve, are now making a move.
CONTINUE STENGTHENING
Providing the economy continues its recovery, with robust economic growth recorded in the first half of the year and inflation falling to more palatable levels, housing market activity is expected to continue strengthening in line with easing affordability levels.
That’s not to say that an expected uplift in inflation in the final few months of the year on the back of rising energy prices or a potential slowdown in the pace of interest rate cuts won’t create a few stumbling blocks along the way.
With the housing market generally in better shape than it was little over a year ago when mortgage rates were still alarmingly high, all eyes will be pinned on the next interest rate decision later this month. The good news is that many major lenders have already begun trimming their headline deals. While another UK rate reduction is expected before the year is out – though potentially not as early as this month – something that would improve mortgage rates for new borrowers and those on trackers, it won’t ease the concerns for those locked into fixed rate deals with some time left to run.
PAYMENT SHOCK
Those on long-term fixes taken out before or during the early stages of the BoE’s rate-hiking cycle are still likely to face a jump in repayments when they eventually come to refinance.
On a less cheery note, something already catalysing the market is the rampant speculation over Chancellor Rachel Reeves’ plans for Capital Gains Tax as she looks to plug the reported £22bn black hole in the nation’s finances.
Rumours that the Government will hike CGT and may potentially even align CGT rates with income tax, have been causing alarm for buy-to-let landlords and those with second homes, particularly for higher earners who could potentially be looking at a CGT rate of 40% or even 45% when they sell up. That’s a huge jump on the current level of 24%, a move that could potentially leave property investors thousands of pounds out of pocket.
LAST-DITCH BID
Data from another property portal highlights the number of buy-to-let landlords already selling up – potentially a last-ditch bid to get ahead of any tax changes – with almost a fifth of properties currently on sale previously rented out.
Rachel Reeves
If Reeves does push ahead with a dramatic shift in CGT rates, a selling frenzy could ensue if homeowners rush to sell before any new rules come into force.
There is also the very real risk that a new CGT regime takes effect immediately, a scenario seen in the past under previous administrations and a move that would prevent a flood of new listings.
CRYSTALISE GAINS
The last thing a Government looking to raise revenue wants is a surge in homeowners desperately trying to crystallise gains before the rules are enforced followed by a slump in sales, and tax receipts, once the deadline passes.
For now, it’s a wait and see moment for landlords and second homeowners to see exactly what Reeves will roll out and when. Those trying to sell now to get ahead of any CGT changes may have run out of time to get a deal across the line as the Budget is less than eight weeks away.
Any increase in rates, whether immediate or set for a later date, has the potential to dampen property prices.
Higher mortgage rates, a significantly tighter regulatory environment and a raft of unfavourable tax changes in recent years have already encouraged many buy-to-let landlords and second homeowners to sell up. A CGT rate change could be the final nail in the coffin for the sector as investors seek refuge in other assets subject to more favourable tax treatment than bricks and mortar.
