A big property rush or meh could be coming on this specific day
There are growing concerns within the property market as the possibility of tax hikes looms ahead of the October 30 Budget. While mortgage rates have been falling, with sub-4% deals becoming more common, uncertainty around potential increases to capital gains tax (CGT) has made both buyers and sellers cautious – and new analysis by Knight Frank shows what an effect it is having.
Earlier this month, Chancellor Rachel Reeves hinted that difficult decisions lie ahead as she works to fill a £22 billion budget shortfall. Although she has expressed a desire to avoid tax rises that would hurt “working people” or discourage investment, Reeves has not ruled out raising CGT. This has sparked speculation that CGT could be increased to align more closely with income tax rates, a move that could significantly affect those with investment properties or second homes.
Reeves’ recent comments during her “Britain is open for investment” tour in the US and Canada underscore the delicate balance she faces. She stated: “Of course, you need to bring in the revenue to fund vital public services, but we’ve also got to grow the economy, and I won’t do anything that makes it harder to achieve that economic growth and prosperity.” Yet, the property market remains on edge, especially as economists speculate that raising CGT is perhaps one of the more viable options for closing the fiscal gap.
This uncertainty has already impacted the market. In the four weeks leading up to September 14, according to Knight Frank, the number of new buyers was 15% below the five-year average, despite a higher number of sellers entering the market. Many sellers, especially those with buy-to-let properties or second homes, are eager to sell before any changes to CGT are introduced. Sellers fear that the current CGT rate of 24% for higher-rate taxpayers could rise, which would lower their post-tax returns on sales. This fear is particularly acute among those sitting on large gains from properties purchased years ago when prices were lower.
The drop in buyer enthusiasm is evident when compared to earlier in the year. In January, for every new sales instruction, there were around 16 potential buyers. By September, this figure had dropped to just 6.7, despite falling mortgage rates. Simon Gammon, head of Knight Frank Finance, noted: “Lenders have reduced their rates in anticipation of a busy autumn season... we’re just waiting for the property market to catch up.”
At the same time, sellers are hoping to avoid being hit by any increase in CGT, particularly landlords and second homeowners. With the potential for higher taxes, many are choosing to sell now to lock in current rates. However, the market isn’t seeing the level of buyer activity typically expected during this time of year, largely due to the Budget’s looming uncertainty.
