The UK property market is poised for growth due to expected reductions in mortgage rates, independent of the Autumn Budget outcomes.
- Lenders currently show reluctance to compete on mortgage rates due to uncertainty surrounding potential tax changes, particularly in Capital Gains Tax.
- A potential lowering of the Bank of England base rate from 5% to 4.75% in November is anticipated, following a drop in inflation rates.
- The property sector faces possible changes in tax structures, including Capital Gains Tax and Stamp Duty, influencing investor decisions.
- Market fundamentals remain robust, with landlords continuing to profit despite anticipated tax adjustments.
The UK property market is anticipated to strengthen over the coming year as average mortgage rates are expected to decline, independent of the Autumn Budget outcomes. Lenders are currently hesitant to engage in aggressive competition on mortgage rates due to uncertainty concerning potential adjustments to Capital Gains Tax (CGT), which could increase from 24% to 40% for higher rate taxpayers. However, there is speculation that property may be excluded from such changes, providing some respite to buy-to-let investors.
Despite these uncertainties, the fundamentals of the property market remain strong. The current inflation rate has decreased to 1.7%, which is below the Bank of England’s target of 2%. This development has led to the anticipation that the Bank of England could reduce the base rate from 5% to 4.75% in November. Consequently, economists forecast a substantial decrease in mortgage rates over the next year, with predictions suggesting rates could fall to as low as 3%.
Changes in tax structures, notably in CGT and Stamp Duty, could significantly impact investor decisions. Should the Labour government decide not to intervene, higher Stamp Duty thresholds will revert to previous levels in April 2025. This change would see the nil rate band drop from £250,000 to £125,000, and from £425,000 to £300,000 for first-time buyers. Such adjustments are likely to spur increased market activity ahead of the 2025 deadline, should the government opt to maintain current rates.
Investors are particularly concerned about the impact of the Autumn Budget, with discussions of a ‘£22 billion black hole’ in public finances prompting caution. As lenders await the government’s plan of action, there is a cautious optimism that regardless of potential tax hikes, the market’s core strengths will prevail. Jonathan Samuels, CEO of Octane Capital, suggests that mortgage rates are likely to drop following the Budget announcement, offering relief to the nation’s investors as we approach 2025.
Landlords continue to make steady profits amidst high tenant demand. This demand, coupled with the expected easing of mortgage rates post-Budget, suggests a positive outlook for the property market. The anticipated decrease in average interest rates could reduce monthly mortgage payments by approximately £150 for those purchasing an average-priced property with an 85% loan-to-value mortgage.
The UK property market’s robust fundamentals and expected mortgage rate declines offer a promising outlook amid potential tax adjustments.
