The Housing Market Losing Momentum As Stamp Duty Deadline Looms
New buyer enquiries and agreed sales in the housing market are dipping into negative territory according to RICS’ latest report.
Changes in Stamp Duty and geopolitical and international economic uncertainty are creating a ‘less favourable climate for the housing market,’ says RICS Chief Economist Simon Rubinsohn.
His comment are within the latest RICS Residential Property Survey which has revealed that buyer demand has weakened, with a net balance of -14% during February compared to -1% in January and the weakest it has been since November 2023.
‘Net balance’ is the percentage of agents reporting uplift minus the percentage reporting a downward trend.
According to the survey’s respondents, the changes to Stamp Duty on April 1, when the threshold will reduce from £250,000 to £125,000, is expected to weaken market activity, and RICS believes that this is increasingly influencing the slowdown as the deadline approaches.
Economic uncertainties
In addition, geopolitical and international economic uncertainties are contributing to a less favourable climate for the housing sector.
Despite these challenges, RICS adds that house prices at a national level continue to rise, albeit at a subdued rate – the +11% net balance for price growth is down from +25% in December and +21% in January.
Looking forward, there is an expectation that the market will continue to soften in the short term, but most respondents believe that house prices will rise over the next twelve months. The net balance for the year-ahead price expectations is at +47%, which is broadly in line with the average reading over the past six months.
In the lettings market, tenant demand dropped below zero for the fourth month in a row, returning a net balance of -4% in February. This is the longest stretch without a positive reading since the monthly (non-seasonally adjusted) lettings dataset was established in 2012.
This points to a broadly stagnant trend rather than an abrupt downturn. However, at the same time, landlord instructions continue to show negative momentum, registering a net balance of -22%.
And that fall in the supply of rental property means there is a net balance of +34% of survey participants predicting rental prices will rise over the coming three months.
Rubinson says: “The UK housing market appears to be losing some momentum as the expiry of the temporary increase in Stamp Duty thresholds approaches. Some concerns are also being expressed by respondents about the re-emergence of inflationary pressures and the more uncertain geopolitical environment.
“That said, looking beyond the next few months, sales activity is seen as likely to resume an upward trend with prices also moving higher.”
Tom Bill, head of UK residential research at Knight Frank comments: “There has been a mood of risk aversion in global financial markets and among UK homebuyers in recent weeks.
“Donald Trump’s erratic trade policy and increases in German defence spending are two reasons beyond the control of the government that most UK mortgage rates remain above 4%, which is keeping demand in check.”
Tomer Aboody, director of specialist lender MT Finance, says: “While sales volumes are up, they are still well below historical figures and some intervention will be needed in order to inject more life into the market. Unfortunately, particularly given further difficulties ahead as the fallout from the recent Budget continues, any positive intervention doesn’t seem to be on the immediate horizon.
“In the rental market, as landlords are continually hit there is reducing availability of rental property for tenants, which is driving up rents.”
And Jeremy Leaf, north London estate agent and a former RICS residential chairman comments on the lettings figures: “Affordability is still acting as a check on rent rises but, lack of supply particularly of smaller flats and houses, has certainly prevented more substantial reductions in activity over the past few weeks.
“Fortunately, some flats freed up by tenants trying to buy, before becoming impossible for them to take advantage of the stamp duty concession, have bolstered availability and helped to maintain a more reasonable balance with continuing almost insatiable demand.”
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