UK Housing Market Braces for Tax Change Impact, Says Rightmove

The UK housing market is bracing for a potential slowdown in activity as the impact of stamp duty changes and a new residence-based scheme for non-dom investors come into effect in April 2025. According to Rightmove, the leading property portal in the UK, these tax changes could lead to a decrease in demand for housing, particularly in the high-end segment.

The stamp duty changes, which include a reversion of the nil rate band to £125,000 and an increase in the stamp duty threshold for first-time buyers, are expected to lead to a rise in bills for some buyers. This could result in a rush of activity in the months leading up to April 2025, as buyers look to complete their purchases before the tax increase. However, the reverse may be true in prime property markets due to new rules for non-dom investors.

The new rules for non-dom investors, known as the Temporary Repatriation Facility (TRF), will allow existing non-doms switching to the government's new residence-based scheme to bring money into the UK at low tax rates. This could lead to an increase in investment in the UK property market, particularly in the high-end segment. Some super-prime buyers are already lining up their property search and completion timings to benefit from the TRF, according to Stuart Bailey, head of London super-prime sales at Knight Frank.

However, the full impact of the stamp duty changes and the TRF may not be seen even by late 2025, as some non-dom investors may choose to ride out the next few years due to schooling or business interests in the UK. This means that the property market may experience some volatility and uncertainty in the early months of 2025, as buyers and investors adjust to the new tax regime.

The increased employer National Insurance contributions, as announced in the budget, could also have a significant impact on the housing market through its influence on employment and wage growth. The increase in employer National Insurance contributions may lead to businesses reducing their workforce or freezing recruitment to offset the additional costs. This could result in a decrease in employment opportunities, particularly for lower-skilled workers. According to the Office for Budget Responsibility (OBR), the increase in employer National Insurance contributions is expected to lead to a reduction in employment of around 100,000 jobs by 2026. This reduction in employment could lead to a decrease in demand for housing, particularly in areas where the job market is heavily reliant on lower-skilled workers.

The impact of the increased employer National Insurance contributions on wage growth could also lead to a decrease in demand for housing. According to the Resolution Foundation, the increase in employer National Insurance contributions is expected to lead to a slowdown in wage growth, with real wages growing by around 1% per year between 2025 and 2027, compared to the 2.5% per year growth expected without the increase. This slowdown in wage growth could lead to a decrease in demand for housing, particularly in areas where housing is already unaffordable.

In conclusion, the UK housing market is facing a challenging environment in 2025, with tax changes, increased employer National Insurance contributions, and potential shifts in demand and supply dynamics all set to impact the market. While the full impact of these changes may not be seen until later in the year, buyers and investors should be prepared for a potential slowdown in activity and increased volatility in the early months of 2025.