Buyers, sellers, and financial markets are still digesting a wave of speculation over potential changes to property taxes – a rumour mill that has added to broader concerns, particularly as government borrowing costs continue to climb, according to Knight Frank.
The estate agency’s latest UK residential market commentary reflects on what started as media chatter about possible reforms quickly escalating into a political row over how many homes Labour’s Angela Rayner owns — and whether she has fallen foul of hypocrisy.
Headlines about stamp duty bills may make for lively political theatre, but Tom Bill, head of UK residential research at Knight Frank, points out that they offer little help to anyone trying to make informed decisions in today’s housing market.
He believes a more useful intervention might have been a government minister simply confirming the obvious: that stamp duty will not be scrapped in September. Such clarity would benefit not just buyers and sellers, but the Treasury, which risks seeing tax revenues fall as prospective movers hold back in anticipation.
Instead, he feels the uncertainty echoes the run-up to the 2024 autumn Budget, when parts of the economy slowed as households and businesses adopted a wait-and-see approach.
Some of the recent speculation suggests more radical changes may be on the table. Rumours that the government could impose capital gains tax on main residences – something long avoided due to the political risk – indicate that Rachel Reeves may be under growing pressure to find new sources of revenue.
Other floated proposals included scrapping stamp duty altogether and overhauling council tax bands, as previously explored.
For now, the market is still moving. HMRC data released on Friday showed residential transactions in July were 5% above the five-year average. The Treasury will be hoping that momentum, restored after April’s stamp duty deadline, isn’t lost in another fog of fiscal uncertainty.
The conjecture has certainly focussed the minds of buyers and sellers, said James Cleland, head of Country sales at Knight Frank.
“Sensibly-priced houses continue to generate interest,” he said. “The recent speculation means that pricing has only become more important in order to encourage buyers off the fence.”
If buyers are on the fence because they expect stamp duty to be scrapped any time soon, they are likely to be disappointed given how lengthy and complex it would be to phase it out and find £10bn from somewhere else.
The speculation will also be influencing sellers. The capital gains tax story is likely to mean some are going to become a little more flexible on price to transact before November’s Budget.
“The problem is that taxing residential property and main homes has a particularly strong emotional element, which can produce reactions that are bigger than the government expects,” added James.
Last week, another plan was floated. This one suggested that landlords may have to pay national insurance on rental income.
Bill commented: “Targeting landlords won’t lose the government many votes but such moves invariably end up hurting tenants. With landlords already selling ahead of the Renter’s Rights Bill and tougher green regulations, another disincentive would reduce supply further and put upwards pressure on rents.
“Those landlords that stay may pass on the extra costs in other ways. Governments need to fully grasp that when you tax an activity, you get less of it.
“This noisy flurry of ideas has presumably made financial markets even more jittery than they were.
“Possibly to the point they deliver an unwelcome judgement on the government this autumn. Governments fear two verdicts: the ballot box every five years, and the bond market every day.
“The yield on the 30-year gilt (UK government bond) closed at its highest level since 1998 in August. This particular financial instrument is a long-term assessment of the country’s financial credibility. And when yields climb as they have, it’s not one Rachel Reeves will want to hear.”
Bill recently discussed how the changing profile of UK government debt holders is pushing up borrowing costs on the Intelligence Talks podcast with Michael Brown, research strategist at financial broker Pepperstone.
In response to the recent yield rises, which take us above levels seen after the mini-Budget in 2022, Brown suggested things could become more perilous for the government.
“The market is starting to, finally, realise the government are almost completely trapped here, given the pledge not to raise taxes on working people, and the inability to pass spending cuts through the Commons,” he said.
“The rather half-baked and ill-thought-through nature of the recent ‘trial balloons’ seen in the press is a sure-fire sign of the Treasury scraping the barrel when it comes to cobbling together enough revenue-raising policies to fill the £20 billion hole that has developed since the spring statement.”
The appointment of Torsten Bell last week to help draft the Budget did nothing to calm nerves, given his reputation as a champion of tax rises during his time heading the Resolution Foundation think tank.
“Markets want politicians to be pragmatists, not ideologues,” said Simon French, chief economist at investment bank Panmure Liberum, in one of the more polite assessments of the appointment on social media. “The facts have fundamentally changed on debt sustainability. Bond pricing suggests UK fiscal policy is drifting without an anchor.”
National Insurance ‘final nail in coffin’ for landlords as some prepare to exit
