UK house prices fell unexpectedly in August amid growing calls for property taxes to be reformed in the Autumn Budget.
The average price of a property sold in the month dropped to £271,079, down from £272,664 in July. Annual house price inflation slowed to 2.1 per cent, from 2.4 per cent the previous month, according to data from the Nationwide.
Robert Gardner, chief economist at Nationwide, said the relatively subdued pace of house price growth was “understandable” given stretched affordability.
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“An average earner buying the typical first-time buyer property with a 20 per cent deposit faces a monthly mortgage payment equivalent to around 35 per cent of their take-home pay, well above the long run average of 30 per cent,” he added.
Property experts warned that rumoured tax changes, including a potential property tax on houses worth more than £500,000, which could be announced in the Autumn Budget, may also increase pressure on the market as increasing uncertainty impacts buyers and sellers.
Tom Bill, head of UK residential research at estate agent Knight Frank, cautioned the Budget speculation could chill the market. He said: “House prices have drifted lower since March as the market digests higher rates of stamp duty and supply continues to outstrip demand.
“Steady mortgage rates mean transaction numbers have improved over that time but the recent property tax speculation risks sending both sales and prices lower as buyers and sellers deal with pre-Budget uncertainty for the second year in a row.”
Karen Noye, mortgage expert at Quilter, says affordability pressures are still weighing heavily on the housing market: “Speculation around potential reforms in the Chancellor’s upcoming Budget, including possible levies on high-value homes or changes to capital gains tax on primary residences, could also cause hesitation among sellers. This would tighten supply further and paradoxically push prices higher, worsening conditions for new entrants to the market.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “We find many of our buyers and sellers regard the summer holidays as a time for reflection about their property and return ready to make decisions about whether to move or not.
“The almost inevitable talk of tax increases on the horizon has resulted in some of our buyers deferring location decisions until the picture becomes clearer, possibly even after the Budget,” he said.
Robert Gardner said UK house prices are still high compared with household incomes, making raising a deposit challenging for prospective buyers, especially given the intense cost of living pressures in recent years.
Natonwide’s Robert Gardner says the costs of servicing a mortgage are becoming a barrier (Photo: Nationwide)“Combined with the fact that mortgage costs are more than three times the levels prevailing in the wake of the pandemic, this means that the cost of servicing a mortgage is also a barrier for many.”
Affordability should continue to improve gradually if income growth continues to outpace house price growth he said.
“Borrowing costs are likely to moderate a little further if bank rate is lowered again in the coming quarters. This should support buyer demand, especially since household balance sheets are strong and labour market conditions are expected to remain solid.”
Nathan Emerson, chief executive at property professional trade body Propertymark, said: “We have witnessed a drop in the number of fall-throughs, a trend that demonstrates an uplift in the number of property transactions completed.
“There are challenges ahead, however, such as increasing the supply of new sustainable homes, providing assistance to first-time buyers and for lenders, ensuring that the latest drop in interest rates translates into more affordable mortgage products.”
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