RECENT STAMP DUTY AND HOUSE PRICE DATA

The latest house price data from Nationwide shows that house prices saw a large 0.7% growth in September, resulting in an annual rate of 3.2% representing the fastest growth in two years. This follows a trend of moderate gains, even as the traditional summer lull typically cools activity. The latest property statistics for August 2024 highlight this resilience, with residential transactions standing at 90,210, a 5% increase from the same period last year, though down slightly compared to July.

As economic conditions begin to stabilise, both buyers and sellers are finding that they are more compelled to get house hunting again helping to stimulate this growth in prices. The Bank of England’s recent move to hold the base rate steady, while not transformative to mortgage rates, does continue to provide stability to the market and will continue to help more competitive mortgage deals re-enter the market. Lenders are competing to attract custom, and a more stable environment is likely to mean they go further with rate cuts.

Fixed-rate and tracker mortgage options continue to present a key decision point for many buyers. While fixed-rate deals provide much-needed certainty, particularly in these unpredictable times, they remain elevated compared to pre-pandemic levels with many people likely shocked when they come to remortgage. As a result, more people are now choosing to look at tracker mortgage deals as they bide their time before fixing later down the road, but this must be weighed against potential early repayment charges.

The upcoming Labour budget is likely going to have a limited impact on further buoying the property market. With the government primarily focused on addressing broader fiscal challenges, including a £22 billion fiscal shortfall, significant housing stimulus seems unlikely at this stage. However, this morning’s results show that organically house prices are returning to a strong upward trajectory.

STAMP DUTY HIKE ON SECOND HOMES

News that the stamp duty rate for second homes will increase to 5% effective tomorrow will further hit the buy-to-let sector. This hike, payable by buyers in England and Northern Ireland, adds a significant cost for those looking to purchase additional properties, including buy-to-let and holiday homes. By raising the upfront expense, Labour aims to discourage investment in second homes, hoping to ease some of the demand pressures that have contributed to higher property prices in popular areas.

This policy is likely to have a dampening effect on second-home purchases as the increased tax burden makes property investment less financially attractive. With fewer buyers entering the market for secondary properties, there may be a slowdown in demand within the buy-to-let sector, which could impact rental availability. In areas where buy-to-let and holiday home markets are strong, this reduction in buyer interest may have knock-on effects on property prices, as reduced demand could moderate price growth in these sectors.

However, it seems a missed opportunity as Labour could have opted to look at a broader reform of stamp duty in the UK. A more forward way of thinking, and a more positive approach, could have been looking at a targeted downsizing drive. This would encourage older homeowners to look at downsizing their proprieties without increased stamp duty costs, which would ultimately free up larger houses for growing families and create more of a balance across the UK house stock. Today's announcements also confirm that the current uplift in the first time buyer stamp duty threshold to £425,000 will cease from March 2025, and will fall to £300,000. This could result in a rush to buy for prospective first time buyers, though many may find it out of reach given still high mortgage rates.

For those still considering second-home purchases, careful financial planning will be more important than ever. Buyers may need to weigh the long-term returns on property investment against the heightened transaction costs, particularly if the primary goal is rental income or capital appreciation. While this policy shift aims to prioritise primary homeownership and address housing affordability, it also raises new considerations for prospective investors who must now navigate a more costly landscape for property investment.