Budget fears slam brakes on UK housing market

[LONDON] UK property surveyors painted a picture of a housing market cooling rapidly in the run-up to Labour’s November budget as fears of tax rises weigh on buyers and sellers alike.

The Royal Institution of Chartered Surveyors (Rics) said its index of homes put up for sale deteriorated to minus 20 in October. It was the third consecutive monthly decline and the lowest reading since 2021. Gauges of buyer demand and sales volumes also weakened, putting downward pressure on house prices.

The property market is in a “holding pattern” amid speculation that Chancellor of the Exchequer Rachel Reeves will target housing in her Nov 26 budget to help fill a multi-billion pound hole in the public finances, Rics said in a survey published on Tuesday. New levies on home sales, changes to capital gains tax reliefs and a so-called “mansion tax” on the most expensive homes are among steps being considered by the Treasury, according to media reports.

“Ongoing uncertainty surrounding potential measures in the upcoming budget are thought to be compounding the cautious mood among both buyers and sellers, while above-target inflation and rising unemployment are also a negative for the market,” said Tarrant Parsons, head of market research and analysis at Rics.

The report adds to evidence that the budget is sapping consumer confidence. Housebuilder Taylor Wimpey has warned that uncertainty about potential tax changes is hurting sales, while the British Retail Consortium said households are putting off purchases of discretionary items such as electronics. 

The housing market has struggled to regain its footing after an increase in transaction taxes earlier this year added thousands of pounds to the cost of buying a home. Fiscal fears are the latest challenge for Britons impacted by a renewed jump in inflation, relatively high borrowing costs and job-loss fears.

While activity is slowing across most regions, high-end areas and London – where home values are double the national average – are suffering the most with agents reporting a weakening picture for properties above £1 million (S$1.7 million). 

Rics said its index of house prices slipped to minus 19 from minus 17, indicating more agents on balance saw prices fall in recent months. London and the south of England fared worse than the national average, and further pressure is anticipated over the coming three months, RICS said.  

The market is only expected to recover early next year, once buyers and sellers have fully digested the impact of any measures announced in the budget, according to Rics.

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“The coming months will be crucial in assessing how the market responds to the Budget, which could prove a turning point in either direction,” Parsons said. “Greater clarity over housing taxation policy may help stabilise sentiment, but if the measures announced add further pressure to activity, they risk deepening the current slowdown.” BLOOMBERG