A leading financial analyst has cautioned that the anticipated resurgence in the housing market this autumn could be jeopardized if the government proceeds with an increase in Capital Gains Tax (CGT).
Speculation about potential CGT hikes in the October Budget has been rife, following remarks by Chancellor Rachel Reeves. Sarah Coles, a personal finance analyst at Hargreaves Lansdown, suggests that last week’s Bank of England base rate cut is likely to spur modest house price growth for the rest of 2024. However, she warns that any CGT adjustments could stifle this growth.
Coles explained, “It’s not going to be a patch on the boom of recent years,” emphasizing that changes in CGT might limit price increases. “It’s worth keeping an eye on buy-to-let investors, who are becoming increasingly alarmed by speculation over Capital Gains Tax rises. If Rachel Reeves boosts the CGT rate to match income tax, a higher-rate taxpayer could see their tax bill rise by two-thirds when they sell.”
She noted that property investors might decide to sell before any potential changes take effect, leading to a surge in properties on the market and consequently dampening prices.
This analysis follows the release of new house price data from Halifax, which shows a 0.8% increase in UK house prices in July. The average UK house price now stands at £291,268, an increase of over £2,000 from the previous month. Annual house price growth is at 2.3%, with the East of England being the only region to experience a decline, down 0.4%. London saw a 1.2% increase, with the average home priced at £536,052.
Jeremy Leaf, a north London estate agent and former RICS residential chairman, remarked that the Halifax figures could be particularly encouraging for the housing market as they reflect the period before the Bank of England’s rate cut. “The housing market is continuing to show its resilience. The recent drop in base rate is already generating new interest and accelerating existing transactions, even during the typically slow holiday period. However, since the fall was anticipated for some time, it has already been factored in by most buyers and sellers, so we expect a steady uplift rather than fireworks in the coming months.”
Iain McKenzie, chief executive of the Guild of Property Professionals, highlighted the significance of the 0.8% monthly increase and 2.3% annual growth rate amid recent economic challenges. He pointed out strong performance in regions such as Northern Ireland and the North West, which have seen annual growth rates of 5.8% and 4.1%, respectively. “This regional variation underscores the diverse nature of the UK property market and the opportunities available across different areas,” McKenzie said.
Amanda Bryden, Head of Mortgages at Halifax, added that the recent Bank of England Base Rate cut and subsequent reductions in mortgage rates are promising for those looking to remortgage, buy their first home, or move up the property ladder. “However,” she cautioned, “affordability constraints and the lack of available properties continue to pose challenges for prospective homeowners. Against the backdrop of lower mortgage rates and potential further Base Rate reductions, we anticipate house prices to continue a modest upward trend throughout the remainder of this year.”