RICS: Property market confidence falls further as Autumn Budget looms

Property market confidence has taken another hit, with estate agents and surveyors reporting a drop in buyer demand and sales activity in August.

Industry participants told the Royal Institution of Chartered Surveyors (RICS) that they expect sales to remain largely stagnant over the coming quarter, with house prices coming under pressure as a result.

The RICS report generates net balance scores between -100 and +100 in response to a series of questions, including: “How have average prices changed over the past three months (down/same/up)?”

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The number of respondents reporting a fall is deducted from the number reporting a rise. If 5% reported a rise and 30% reported a fall, the net balance figure would be -25%.

In August, a net balance of -19% of respondents said house prices fell over the past three months – a weakening in sentiment compared to July when the figure was -13%.

It is perhaps unsurprising given the net balance score for new buyer enquiries fell from -6% to -17% – the second consecutive drop. Just two months before in June, the reading was positive at +3%. Agreed sales also fell from -17% to -24%.

“Many selling agents are rolling out the annual excuse of the ‘holiday season’ for sluggish activity, but there is a real sense that the market is cooling and unlikely to breathe signs of recovery until after the Budget,” said survey respondent Neil Foster, a chartered surveyor at Hadrian Property Partners in Northumberland.

Other respondents agreed that media speculation about changes to stamp duty and capital gains tax (CGT) had created headwinds. “General sentiment among buyers and potential vendors is one of hesitancy and caution,” said Stan Shaw, estate agency director at Mervyn Smith & Co. in South West London.

Rumoured property taxes

Tax hikes are widely expected in the Autumn Budget, as chancellor Rachel Reeves grapples with weak economic growth, high borrowing costs, and the fallout from failed spending cuts.

Property taxes have been a big area of speculation, with stamp duty reforms, a so-called mansion tax, and new taxes for landlords all rumoured to be up for discussion.

Rumoured stamp duty reforms could include replacing the existing tax with an annual levy on properties worth more than £500,000, payable at the point of sale. The idea – first reported in The Guardian – seems to have been inspired by proposals from the think tank Onward.

Another area Reeves is supposedly considering is removing the CGT exemption for main homes, if they exceed a certain value. Some are referring to this as a “mansion tax”. Under current rules, CGT is only charged on the sale of second homes.

Critics have argued that shifting the tax burden onto the seller’s side – both in terms of stamp duty and a possible CGT bill – could bung up the market by discouraging people from moving.

“We need to make it easier and more attractive for those at the top of the market to consider downsizing if they are in a position to do so,” said Rightmove’s chief executive Johan Svanstrom.

“There is no real incentive for someone in a large home to downsize to a smaller one unless they truly need to and can still afford the stamp duty bill.”

House price outlook weakens

Combined with other pressures like high borrowing costs and stretched affordability, the Budget seems to be creating a short-term confidence wobble. A net balance of -20% of respondents expect house prices to fall over the next three months, according to RICS.

Although modest growth is still expected over the next 12 months, a net balance score of +9% is the weakest in this category since December 2023.

There is significant regional variation, with evidence of a north-south divide. East Anglia and the South West were the two weakest regions over the past three months, while Northern Ireland was the strongest.

This echoes the trend seen in official data from HM Land Registry. Its latest report was published on 20 August, and covers the 12 months to June.

Northern Ireland saw annual house price growth of 5.5% over this period, making it the second-best performing of the UK nations after Scotland (5.9%). Both figures were significantly higher than the national average (3.7%).

Of the English regions, the North East experienced the fastest growth (7.8%), according to HM Land Registry, while London saw the slowest at 0.8%.

Most forecasters think house prices will end the year in positive territory, although the outlook has worsened in recent months. Estate agency Savills has lowered its national forecast from 4% to 1%, reflecting the slower pace of market activity in the wake of April’s stamp duty changes, as well as geopolitical tensions and pre-Budget “jitters”. Meanwhile, Rightmove has halved its prediction from 4% to 2%.

On a regional basis, Savills expects Wales to end the year with the strongest growth at 3%, followed by Scotland, the North West and the West Midlands, all forecast to achieve 2.5%.