UK house prices rise amid fear of capital gains tax hike

UK house prices picked up in August, according to an industry survey, which found the number of new properties being listed on the market also rose amid fears of a capital gains tax hike in the upcoming autumn budget.

The Royal Institution of Chartered Surveyors (RICS) August residential market survey showed that its net price balance, which acts as a leading indicator for other house price indexes, had risen +1 following almost two years of declines.

Surveyors also expected this to continue, with a +14 net balance of respondents to the survey predicting a steady rise in prices over the next three months.

This comes after Halifax's August index, released Friday, showed UK house prices rose last month at their fastest annual pace since late 2022, up 4.3% year-on-year. This took the average house price up to £292,505 in August.

Amanda Bryden, head of mortgages at Halifax, said the growth built on a "largely positive summer for the UK housing market. Prospective homebuyers are feeling more confident thanks to easing interest rates."

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The Bank of England is due to announce its next interest rate decision next week, having decided to lower its base rate to 5% in August. This influences the rates lenders set on mortgages and other types of credit. Markets have been pricing in that the central bank will keep the base rate on hold this month but expect two more cuts this year.

However, nervousness around the upcoming autumn budget also appears to be affecting the property market. There are fears that chancellor Rachel Reeves will announce an increase in capital gains tax on budget day on 30 October, as part of efforts to plug a £22bn "black hole" in public finances.

Data from property platform Rightmove (RMV.L), released last week, showed that the proportion of former rental homes going up for sale had reached a record high, suggesting that more landlords were selling up. Rightmove cited the mooted increase in capital gains as a potential driver.

There is currently a £3,000 tax-free allowance on capital gains, after which there is an 18% capital gains tax applied on residential property sales for basic rate taxpayers and 24% for those in the higher rate tax band. The Treasury has reportedly drawn up plans to align capital gains rates with income tax.

Think tank Resolution Foundation said that making changes to capital gains, as well as inheritance tax and national insurance, could help Reeves raise more than £20bn.

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In addition to increasing house prices, the latest RICS residential market survey showed that buyer demand and sales activity had also been on the rise in August.

Simon Rubinsohn, chief economist for RICS, said: "Anecdotal remarks from respondents still demonstrate the need for realistic pricing to get deals done with uncertainty both around the scope for further interest rate cuts and the likely contents of the forthcoming budget keeping the mood in check."

Sarah Coles, head of personal finance at Hargreaves Lansdown, said that while August's rise in house prices was a "positive sign of healthy activity in the market, but it comes with a sting in the tail. A combination of relatively high mortgage rates and higher house prices are going to keep pricing some people out of the market, and persuade some buyers to overstretch themselves."

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