UK property asking prices growth decelerates prior to upcoming stamp duty adjustments.
In the early days of February, the property market took a slowdown as home sellers started to adjust their expectations given the upcoming changes in stamp duty.
The Rightmove House Price Index for the first half of February showed a meager 0.5% increase in asking prices, much lower than the usual 0.8% for this period of the year.
Such sluggishness in the property market came as the upcoming stamp duty thresholds, set to drop in April, were making sellers more realistic about house prices. Buyers initiating the process now would likely face higher property taxes.
According to data from the property website, the average asking price as of mid-February was £367,994, a £1,805 and 1.4% increase year-over-year. The price of a typical first-time buyer home decreased by 0.1% monthly to £226,887, while second-stepper and top-of-the-ladder properties saw a 0.5% and 0.6% increase, respectively.
Colleen Babcock, a property expert at Rightmove, pointed out that new sellers were adopting a more restrained pricing approach following a quick start to the year. Sellers are mindful of the high competition and the approaching stamp duty deadline, aiming to attract buyer interest and support activity levels.
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The stamp duty dash
The first quarter of the year saw a rush in the property market as buyers hastened to submit offers and initiate the conveyancing process with a goal of completing before the stamp duty thresholds dropped in April.
Presently, first-time buyers benefit from zero stamp duty on the first £425,000 of a purchase, while home movers enjoy relief on the first £250,000. These thresholds are set to drop to £300,000 and £125,000 from April, translating to additional costs for buyers.
The high demand for properties and the squeeze on available homes has resulted in a 10-year high for the number of homes available for sale, moderating the New Year's price surge, according to Rightmove. The number of new sellers coming to the market has increased by 13% annually, while buyer demand is up 8%, and sales agreed numbers have risen by 15%.
However, Rightmove's analysis showed that there are more than 550,000 homes sold but yet to be legally completed – a 25% increase compared to the same time last year. Many of these may miss the deadline. First-time buyers between £500,001 and £625,000 are the most affected, with an extra £11,250 at risk for this group if the deadline is missed, according to Rightmove.
Babcock further stated, "The upcoming stamp duty deadline in England remains a hot topic. Although some movers may not be affected at all, others will be hit hard. We've previously suggested reforms such as regional variations in stamp duty charges to tackle some of the inconsistencies in the current system.
"Given the predicted logjam in conveyancing as well as the possibility of buyers missing the deadline and subsequently paying more tax, it would seem reasonable for the government to announce a short extension before the end of March."
Will house prices rise in 2025?
Current forecasts predict that house prices will see a 2% to 4% growth for 2023, but the current data is skewed due to the rush to complete transactions before the stamp duty changes. It remains uncertain how pricing will change from April when the buying process will be more expensive and include higher taxes.
Rightmove is still forecasting that asking prices will rise by 4% this year. Babcock continued, "Beyond the stamp duty deadline, agents report that underlying market activity remains positive, and they don't anticipate a major drop-off in activity from April as the financial impact on many movers is smaller than previous deadlines."
Toby Leek, president of the estate agent trade body NAEA Propertymark, stated, "Many buyers will have been placed in the driver's seat when it comes to their next house purchase due to the time constraints placed on sellers to complete sales before the upcoming stamp duty increases.
"What we can expect now is a potential slowing down in the pace of the housing market along with the number of mortgages approved. Those who cannot move home before the stamp duty increases will likely be eagerly awaiting future inflation and interest rate announcements in the hopes of improving their affordability in the long term."
Investors and business owners in the real-estate market might want to closely monitor the financing aspects of property transactions, given the upcoming changes in stamp duty that could impact purchase prices. With the stamp duty thresholds set to drop in April, investors should be aware of the potential increase in costs for buyers, which could affect buying decisions and property values in the business of real estate.
Buyers rushing to complete purchases before the stamp duty changes in April have led to a surge in the property market, resulting in a high demand for properties and a 10-year high for the number of homes available for sale. However, the slowdown in the property market after the stamp duty deadline in April could result in a potential slowing down in the pace of the housing market, affecting the business of buying and selling property.
