UK house price growth slows but stamp duty changes likely to spark buyer rush | housing market

Nationwide said last month that growth in UK house prices had unexpectedly slowed, as it warned buyers it expected a surge in transactions early next year due to changes to stamp duty rules in the Budget.

Annual house prices rose 2.4% in October, according to the Home Builders' Association monthly index, a slowdown from the two-year high of 3.2% recorded in September.

That was still the third-highest annual growth since December 2022, but lower than analysts had forecast, with a Reuters poll of economists predicting a 2.8% increase this month.

The average UK house price in October was $265,738, up 0.1% from September. Robert Gardner, chief economist at Nationwides, said despite the significantly higher interest rate environment, market activity remains resilient with mortgage approvals approaching pre-pandemic levels.

The Bank of England is widely expected to cut interest rates from 5% to 4.75% next week.

Some banks have already started cutting mortgage rates, with Santander cutting all rates by 0.36% on Friday and Clydesdale cutting some products by 0.20%. But others have increased fares, with Virgin increasing its fares by 0.15% since the Budget.

The Office of Budget Responsibility said in its economic outlook released with Wednesday's budget that it expects interest rates to rise from about 3.7% in 2024 to as high as 4.5% in 2027.

Gardner warned that the Chancellor's decision to remove the temporary increase to the zero stamp duty rate next April could spark a drive to complete purchases before the changes take effect.

In September 2022, the government temporarily increased the nil rate of stamp duty, which is the amount before you start paying stamp duty when purchasing a home, increasing the nil rate for first-time buyers from 300,000 to 450,000 and increasing the nil rate for homebuyers. Additional homes from 125,000 to 250,000.

Rachel Reeves said in Wednesday's Budget that this will be scrapped from March 31 next year.

“The main impact of the stamp duty changes is likely to be on the timing of property transactions,” says Gardner. That's because buyers aim to complete their home purchase before the tax changes take effect.

This will result in a surge in transactions in the first three months of 2025 (particularly March), followed by a weakening period over the next three to six months, as happened with previous stamp duty changes.

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During the coronavirus pandemic, then-chancellor Rishi Sunak announced a stamp duty holiday to stimulate the property market, which led to increased activity, particularly in the months leading up to it.

Gardner said fluctuations in activity are likely to be less pronounced because the temporary changes to the zero interest rate have been in the works for a long time and the planned expiration dates are well known.

Nationwide estimates that stamp duty changes will affect one in five first-time buyers, with this impact rising to two in five in the South East of England.

Gardner added: The Prime Minister also announced a two percentage point increase in the stamp duty rate on additional homes to 5%, which came into effect from October 31.

Based on data up to June 2024, this will affect around 194,000 transactions – around one in five residential transactions in England and Northern Ireland.

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