Some commentators are ringing alarm bells over one worrying trend in Zoopla’s latest sales activity report
It feels like springtime for the housing market. After a long cold Arctic winter of high mortgage rates, the first sunbeams of mortgage rate reductions, along with a heating up battle for market share is all bringing us the bright green shoots of a market revival.
But as the UK housing market experiences a visible uptick in activity, speculation is growing that the surge in home sales may be a kneejerk reaction to impending tax changes. Zoopla has reported a 25% rise in sales agreed year-on-year, along with a 26% increase in buyer demand which sounds like 100% Good News.
This activity has been largely attributed to lower mortgage rates, but concerns are rising that many sellers—especially landlords and second homeowners—are rushing to offload properties before potential tax hikes in the upcoming Rachel Reeves budget on October 30.
A significant factor behind the growing supply of homes for sale, which has risen 12% compared to last year, appears to be linked to the leaks from Westminster discussing tax increases. A close look at Zoopla’s report is also concerning – a substantial number of properties currently listed are "chain-free," with Zoopla estimating that 32% of these may belong to landlords or second homeowners – bailing before a big CGT hit.
The buy-to-let market, already grappling with rising mortgage costs and proposed changes to energy efficiency standards, faces additional uncertainty with rumours of capital gains tax (CGT) hikes. Investors fear that the Labour government could introduce measures aimed at reducing the deficit, and that the new government may see ‘wealthy’ homeowners and investors.
Ed Miliband’s recent announcement at the Labour Party conference that all rental homes must meet Energy Performance Certificate (EPC) standards by 2030 has further exacerbated pressure on landlords. Upgrading older properties to meet these standards could require significant investment, leaving many landlords contemplating selling before new regulations—and any associated tax increases—take effect.
Read more: Selling 'frenzy' as property investors try to avoid Labour tax grab
The National Residential Landlords Association (NRLA) has already voiced concerns about the mounting financial burdens on landlords. Chris Norris, the NRLA's policy director, emphasised the need for clear guidance on the new energy efficiency targets. He also noted that a growing shortage of skilled tradespeople could complicate and delay necessary upgrades, further incentivising landlords to exit the market.
The fear of tax changes, combined with rising costs, has created what some describe as a “frenzy” among landlords and investors. Tim Stovold, a tax expert at Moore Kingston Smith, notes that many are "exploring asset sales or other strategies to lock in current tax rates before the Budget." Capital gains on second homes are taxed at lower rates than income, but any changes in CGT could significantly reduce profits for those holding onto their properties. As a result, many are rushing to sell, hoping to complete transactions before any new policies are announced.
In addition to CGT concerns, local councils are expected to double council tax on second homes by 2025, adding further pressure on second homeowners to sell. Coastal and rural areas like Truro and Torquay, where second homes are common, have seen significant increases in housing supply, with listings up 47% and 44%, respectively.
Read more: Is buy-to-let getting too hard?
While sellers are eager to move quickly, buyer demand has kept prices stable. According to Zoopla’s Richard Donnell, "lower mortgage rates are delivering a much-needed confidence boost to homeowners," helping to balance out the influx of properties on the market. Buyers, too, seem motivated by the favourable borrowing conditions, and Nathan Emerson of Propertymark has noted the emergence of multiple sub-4% mortgage deals as a sign of renewed economic confidence.
However, while the increased supply of homes has not caused a steep drop in prices, experts warn that sellers cannot afford to overprice their properties if they want to sell quickly. Sarah Coles of Hargreaves Lansdown highlighted that many sellers are "panicking" about potential tax changes, noting that while demand is up, "it’s still a buyer’s market."
As the October budget looms, the housing market remains in a state of flux. The potential for CGT increases, rising council taxes, and new regulations on energy efficiency have created an uncertain environment, particularly for landlords and second homeowners. Whether this recent flurry of sales represents a temporary blip or a longer-term shift in the market will depend largely on what tax changes are ultimately introduced.
