Welcome to NestInsights, your guide to the evolving UK property market. In this blog series, we explore the latest property news and developments that shape the sector, offering you the insights needed to navigate and thrive. Our goal is to provide a comprehensive overview that empowers you to make well-informed decisions in this dynamic market.
Table of Contents
Budget 2024: Key Tax Areas Impacting Housing
Rise of Hybrid and Self-Employed Estate Agents
Potential Capital Gains Tax Hike and Its Risk of One Million Home Sell-Off
End of Mortgage Price War: Rate Increases by Major Lenders
Prospects for Double Interest Rate Cuts as Inflation Falls to 1.7%
UK Rental Market: Continued Rent Increases Amid Buy-to-Let Landlord Exodus
UK Property News Week 42
Budget 2024: Key Tax Areas Impacting Housing
The 2024 budget has introduced several tax measures that will have a direct impact on the UK housing market, particularly for property investors, second homeowners, and landlords. Four key areas are of particular importance:
1. Stamp Duty Land Tax (SDLT)
While no sweeping changes to Stamp Duty Land Tax are expected, the focus remains on supporting first-time buyers, especially in the southern regions of England. Stamp duty currently generates over £13 billion annually, with 56% of the total paid by homeowners in southern England.
The government may extend relief for first-time buyers purchasing properties up to £425,000, which is set to expire in March 2025.
This measure predominantly benefits those buying in higher-value markets such as London.
2. Capital Gains Tax (CGT)
One of the most significant potential changes in the 2024 budget revolves around the proposal to align capital gains tax (CGT) with income tax rates. Currently, higher-rate taxpayers pay CGT at 24% on residential property gains.
The proposed increase to 45% would more than double the tax on gains from property sales for high earners. This shift could lead to an exodus of landlords, with estimates suggesting up to one million rental homes could be sold in the next decade, drastically affecting the private rental sector.
3. Council Tax Revaluation
Council tax reform is another area where change is possible, with a simple revaluation potentially being introduced. The current tax bands were set in 1992, and many argue they no longer reflect modern property values. While revaluation would not immediately alter the overall tax burden, it could lead to future reforms aimed at making the system more equitable.
Higher-value areas like southern England could see increased council tax bills under such reforms.
4. Inheritance Tax
Although no specific announcements have been made, inheritance tax thresholds are likely to remain a key consideration for homeowners with significant property portfolios. With property prices continuing to rise, many estates are likely to exceed the current threshold, making effective planning more crucial for those looking to manage future tax liabilities.
These tax changes could create significant challenges for investors and landlords, particularly those holding multiple properties. With rising tax burdens, some may choose to sell, which could lead to increased housing supply but also potential volatility in the rental market. As always, strategic planning and professional advice will be essential for property owners navigating these upcoming changes.
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Rise of Hybrid and Self-Employed Estate Agents
Data from the third quarter of 2024 reveals that the market share of exchanges among self-employed agents grew by an impressive 22.8% year-on-year.
This growth is particularly strong in higher-priced property segments, with a 44% increase in market share for properties valued at over £1 million. Self-employed agents are now responsible for a significant portion of the property market across different price brackets, with uplifts in exchanges recorded across almost every region in the UK. Regions like the South West, Scotland, and the West Midlands have seen more than 50% growth in this sector.
Benefits Driving the Shift
Several factors are contributing to the growth of hybrid and self-employed models. Agents working in these models, under brands such as eXp, The Agency UK, and Keller Williams, benefit from greater flexibility in how they manage their businesses. They can set their schedules, retain a larger percentage of the commission, and reduce reliance on traditional office structures. This has allowed self-employed agents to offer more competitive services while maintaining a personalized approach to client relationships.
As of 2024, self-employed agents collectively outnumber some of the UK’s biggest traditional agencies, including Purplebricks and William H. Brown. The ability to leverage technology, reduce overheads, and operate in more efficient, customer-centric ways has made this model increasingly attractive.
Regional Variations
While self-employed agents have seen growth across most regions, there are still variations. The market share of self-employed agents is highest in regions like Yorkshire and the Humber and the East Midlands, though more modest in growth. Conversely, the North East has shown a decline in self-employed agent market share, falling by 56%, demonstrating that not all areas are equally receptive to this model.
Potential Capital Gains Tax Hike and Its Risk of One Million Home Sell-Off
The potential increase in capital gains tax (CGT) has sparked significant concern in the UK
property market, with many experts warning of a potential mass sell-off of rental properties.
The proposal, currently being considered by the government, would align CGT with income tax rates, meaning higher earners could face a tax rate as high as 45% on the profits they make from selling property. This is a sharp rise from the current rate of 24%.
Impact on Landlords and the Rental Market
A study conducted by Capital Economics estimates that up to one million rental homes could be sold over the next decade if this tax hike is implemented. The projected impact of this sell-off is immense, particularly in the private rental sector (PRS), which is already facing multiple pressures from recent tax reforms. The removal of mortgage interest relief, the scrapping of the 10% wear and tear allowance, and the introduction of the 3% stamp duty surcharge have already cut into landlords’ profits, deterring further investment.
If CGT is aligned with income tax, higher-rate taxpayers would be liable for up to 45% of the profits on a property sale, a significant increase from the current rate. This financial burden could lead to an exodus of landlords from the rental market, resulting in fewer rental properties, increased competition for available housing, and potentially higher rents for tenants.
Estimated Sell-Off: Key Figures
Capital Economics estimates that 910,000 landlord-owned homes would leave the market within the next ten years if CGT increases. Of these, 790,000 would be sold by landlords exiting the market, while an additional 120,000 potential purchases would not take place. This mass exit could cause significant disruption in the UK housing market, particularly in regions where rental property supply is already constrained.
Broader Market Concerns
This potential sell-off also poses broader concerns for the housing market, particularly with regard to housing supply and affordability. With fewer properties available for rent, competition among tenants could push rental prices higher, exacerbating housing affordability issues for many. Furthermore, the reduction in available rental properties could limit housing options for younger generations and those unable to purchase homes, potentially leading to a housing crisis.
For property investors, this looming tax increase underscores the importance of carefully assessing the timing of sales and seeking professional tax advice to mitigate potential financial losses.
End of Mortgage Price War: Rate Increases by Major Lenders
The UK mortgage market has been marked by a long period of intense competition among lenders, with rates dropping to historic lows. However, 2024 seems to be the year that signals an end to the mortgage price war. Major lenders, including NatWest, Santander, and TSB, have all announced significant rate increases, indicating a shift in the competitive landscape.
Rate Hikes by Major Lenders
NatWest, one of the UK’s leading lenders, has raised the rates on most of its two- and five-year fixed and tracker mortgages by 0.3%.
Notably, the rate on its flagship five-year deal for borrowers with a 40% deposit increased from 3.79% to 4.09%. Similar increases have been seen across the board, with the rate for a five-year fixed deal requiring a 25% deposit rising from 3.89% to 4.19%.
Santander and TSB have followed suit, with rate hikes of up to 0.3 percentage points across their fixed-rate mortgage products.
These rate increases come after several months of falling rates, which had provided significant relief to borrowers, especially those with larger deposits. However, the market shift can be attributed to rising yields on government bonds, or "gilts," which are commonly used to price fixed-rate mortgage deals. In mid-September 2024, the benchmark ten-year gilt yield saw a sharp increase of half a percentage point, reversing a trend that had kept borrowing costs low.
Impact on the Property Market
The mortgage rate hikes have already started to affect the UK property market, which had been showing signs of recovery as borrowing costs dropped earlier in the year.
With mortgage rates climbing back above 4%, the property market could experience a slowdown, particularly among first-time buyers who are more sensitive to changes in monthly repayment costs. The availability of sub-4% mortgage deals, which had started to drive up buyer activity, is now diminishing, with fewer lenders offering these rates.
Despite the rate increases, there is still some optimism for the property market. The Bank of England is expected to cut its base interest rate from 5% to 4.75% in the coming months, which could help alleviate some pressure on mortgage rates and provide more stability to the housing market.
However, the overall sentiment is that the mortgage price war, which had driven rates to extremely low levels, is officially over.
Prospects for Double Interest Rate Cuts as Inflation Falls to 1.7%
Recent data from the Office for National Statistics (ONS) reveals that UK inflation has dropped to 1.7% as of September 2024, marking its lowest level since April 2021. This significant drop, primarily driven by falling airfares and fuel prices, has reignited discussions surrounding interest rate cuts by the Bank of England (BoE).
Expected Rate Cuts
Economists had initially predicted a more modest inflation fall to 1.9%, so the steeper decline has taken many by surprise and has increased pressure on the BoE to further lower interest rates. In August 2024, the BoE cut the base rate from 5.25% to 5%, the first reduction in more than four years.
Now, financial markets are anticipating additional cuts before the year ends, with growing speculation of a double rate cut—first in November and again in December. Should this scenario unfold, the year-end base rate could drop to 4.5%.
Impact on the Housing Market
A reduction in interest rates would be welcome news for property buyers, particularly first-time buyers who have been affected by higher borrowing costs. In the wake of August’s rate cut, UK estate agents reported an increase in buyer interest, especially for properties at more accessible price points. The potential for further cuts could bolster market confidence, resulting in a more active property market leading into 2025.
Many analysts expect mortgage rates to follow the base rate downward. The BoE’s indication that they may cut more aggressively, depending on economic conditions, has led to optimism that mortgage rates could dip below 3% by mid-2025.
Market Sentiment
For sellers, the prospect of lower rates means increased buyer demand and improved affordability, which could help stimulate price growth. Nathan Emerson, CEO of Propertymark, noted that the current economic developments lay the foundation for a stronger housing market in 2025.
While some analysts remain cautious due to the potential volatility of wage growth and other macroeconomic factors, the overall outlook for the housing market remains positive as affordability improves.
UK Rental Market: Continued Rent Increases Amid Buy-to-Let Landlord Exodus
The UK rental market continues to face significant strain as rent prices rise sharply amid a marked exodus of buy-to-let landlords. According to the latest data from the Office for National Statistics (ONS), the average private rent in the UK increased by 8.4% in the 12 months leading to September 2024.
This ongoing trend is largely driven by a mismatch between supply and demand, with fewer rental properties available as more landlords exit the market due to growing financial and regulatory pressures.
Landlord Exodus and Its Impact on Rental Supply
A significant number of buy-to-let landlords have decided to sell their properties, primarily due to rising taxes and stricter regulations.
Factors such as the removal of mortgage interest tax relief and the introduction of a 3% stamp duty surcharge for additional properties have made it increasingly difficult for landlords to generate sufficient returns on their investments.
In addition, the potential capital gains tax (CGT) hike, aligning CGT rates with income tax rates, could result in a higher tax burden of up to 45%, prompting even more landlords to sell.
The result of this exodus is a shrinking rental property supply, which exacerbates the housing shortage, particularly in high-demand regions. London, for instance, saw a 9.8% rise in rental prices, while Wales experienced an 8.3% increase. As landlords continue to leave the market, prospective tenants face fierce competition for fewer available properties, further driving up rents.
Takeaways
Potential tax changes in Stamp Duty, Capital Gains Tax, and Council Tax could significantly impact investors and landlords, especially those holding multiple properties.
Self-employed estate agents grew by 22.8% in 2024, with particularly strong gains in high-value property markets due to greater flexibility and lower overheads.
A proposed CGT hike could trigger the sale of up to one million rental properties in the next decade, exacerbating supply shortages and increasing rents.
Mortgage rates have risen by 0.3% across several major lenders, signaling the end of the mortgage price war, though potential future interest rate cuts may alleviate some pressure.
With inflation dropping to 1.7%, there is growing anticipation of a double interest rate cut by the Bank of England, potentially boosting the housing market.
UK rents increased by 8.4% over the last year as a growing number of buy-to-let landlords leave the market, reducing rental supply and increasing competition among tenants.
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