MARKET DRIVERS IN 2024

Their actions have been felt particularly keenly in the housing market of 2024.

The beginning of the interest rate cutting cycle, alongside the recent approach to mortgage regulation at the Bank, allowed mortgage approvals to pick up and a mainstream house price recovery to gain a foothold.

Meanwhile in March, Jeremy Hunt’s attempt to steal his opposite number’s thunder regarding the taxation of ‘non-doms’ was the first warning that the taxation of wealth would hang over the prime markets for the remainder of the year.

That became even clearer once the general election was called and proposals such as the charging of VAT on school fees appeared in the Labour party manifesto. Then post-election, the reputed discovery of a “£22 billion black hole” led to fevered speculation as to how Rachel Reeves would attempt to plug the gap in public finances.

With a widespread recognition that an increased tax burden would fall on those with the broadest shoulders, this played on the confidence of buyers across the prime market.

‘NON-DOMS’ AND PRIME CENTRAL LONDON

In some parts of the market, the exposure to potential changes was greater than others.

In prime central London, ‘non-doms’ started to weigh up the lifestyle benefits of remaining resident in the UK against the future tax implications of doing so. Though prime properties in areas such as Knightsbridge, Mayfair and Chelsea did not hit the market in any great volume, activity levels fell. Indeed, while there were 314 sales of £5m+ plus property in central London in the first nine months of 2024, this was 23% below the same period a year earlier.

Prices, already 19% below their 2014 peak at the beginning of the year, slid back by a further 1% to the end of September.

A “wait and see” or “hope for the best, plan for the worst” approach largely prevailed. It looked increasingly prudent the closer we got to the Budget.

In early September, a report by Oxford Economics questioned whether the abolition of the ‘non-doms’ tax regime was guaranteed to be a revenue raiser, in light of the “highly uncertain behavioural response” of those affected. Then three weeks later, in a turn of events more Yes, Minister than House of Cards, another story emerged in the Guardian.

It suggested that the Chancellor was rethinking her approach to ‘non-doms’ tax changes on the back of Treasury concerns that their counterparts over at the Office of Budget Responsibility might conclude the plans would fail to generate any additional cash. Cue a burst of activity immediately prior to the Budget, as buyers’ thoughts turned to other tax changes that might come into effect.

Suddenly, it felt as if the spirit of Denis Healy, the Labour Chancellor from 1974 to 1979 - who possibly had the wildest eyebrows of anyone in British political history - was being channelled through Number 11. After all, it was he who concluded:

THE VALUE OF NEEDS-BASED BUYERS

Elsewhere, the prices of prime properties in second home coastal hotspots fell by -4.1% over the first nine months of the year. Higher council tax bills coincided with the well-publicised prospect of a rise in capital gains tax rates. Though residential property ultimately escaped that fate, this was still enough to distort the supply-anddemand dynamic in a largely discretionary market.

In more needs-based (and consequently less volatile) parts of the prime market, the response was less dramatic.

With lenders quick to price in the prospect of future rate cuts, the cost of a 2-year fixed rate mortgage on a modest loan-to-value temporarily fell below 4.0%, as inflation headed back to 2.0% and wage growth moderated. And so, in the more domestic parts of the prime London market, prices rose by 1.1% in the first nine months of the year, fuelled by demand from upsizers in the family house market.

With the race for/to space and dash for the country having come to an end, the prime market beyond London remained more price-sensitive. Buyer commitment waxed and waned, as buyers eyed a higher tax environment.

Younger buyers focussed on the cost of private schooling, while older homeowners concerned themselves about what might happen to their inheritance tax exposure. As an average, prices fell by -0.9% in the first nine months of the year, though they remained more resilient further north.

Sellers had to keep their price expectations in check to maintain market activity. But against all of the pre-Budget caution, transaction levels remained relatively healthy, up on those seen in 2023 when the market contended with 14 successive increases in the Bank of England’s base rate.

The actions of the Bank of England and the Exchequer had, yet again, played their part. And they looked set to determine what came next. 

And so with the Bank of England poised to make further rate cuts, Rachel Reeves, opened the Budget red box and rose from the front bench to end the speculation about what tax changes were in the offing.