(Commonwealth_Europe) London is currently facing the biggest bottleneck in the UK’s housing market, as both buyers and sellers rush to complete property transactions before a significant increase in property taxes takes effect. According to Rightmove, the number of first-time homebuyers in the capital has risen by nearly a third compared to the same time last year. This surge is driven by the pressure to finish deals before April, when the stamp duty tax threshold is lowered, making home purchases more expensive for many buyers.
The impending changes to stamp duty are particularly affecting buyers in high-priced areas like London. Currently, buyers are exempt from paying stamp duty on the first £425,000 of a property’s purchase price. However, on April 1, this threshold will be reduced, and new tax bands will be introduced across the board. This change means that first-time buyers in London could face an increase in their stamp duty charges by up to £10,000, which could be a considerable burden for many.
Colleen Babcock, a property expert at Rightmove, pointed out that the stamp duty changes are particularly impactful in more expensive regions like London, where buyers already face significant costs. The lengthy and often frustrating home-buying process has added to the pressure, with many buyers trying to finalize their deals by the end of March. This deadline is especially critical for those looking to secure a more affordable tax rate, as they aim to avoid the additional financial strain caused by the upcoming hike.
Rightmove predicts the worst first-time buyer backlog in London, but it’s not limited to the capital. Across the UK, there are now over half a million homes going through the completion process, which represents a 25% increase compared to February 2024. This high volume of pending transactions suggests that many will struggle to meet the stamp duty deadline.
One of the challenges contributing to this delay is the length of the home-buying process, which typically takes an average of five months due to the extensive requirements for document exchanges, property checks, and identity verification between various parties, including mortgage providers. To address these delays, the Labour government announced plans to implement digital identity verification and improve data-sharing practices in the housing sector. These changes are part of Prime Minister Keir Starmer’s broader vision to tackle housing affordability by building 1.5 million new homes by 2029.
Despite these efforts, many prospective homebuyers are still under significant financial pressure. In addition to the impending tax changes, households are grappling with rising food and energy costs. There is also growing uncertainty surrounding job security, as companies begin to adjust to the government’s planned increase in employment costs. These financial strains are making it increasingly difficult for many to afford higher property prices.
In the face of these challenges, home sellers are also feeling the pressure. After a surge in listings early in the year, many are now offering discounts to attract buyers. The average price of new homes for sale in the UK rose by just 0.5% in February, reaching £367,994. This is a lower increase than the typical 0.8% rise seen during this time of year, indicating a slowdown in price growth.
At the same time, easing borrowing costs is providing some relief to buyers. Lenders have started offering more competitive mortgage deals following a 25-basis-point cut in the Bank of England’s interest rates on February 6, bringing the rate down to 4.5%. Matt Smith, a mortgage expert at Rightmove, expressed hope that this rate cut might mark the beginning of a more sustained period of falling borrowing costs. While major rate reductions are unlikely, the first sub-4% mortgage rates of 2025 have already emerged, offering some optimism for prospective buyers looking to secure more affordable financing options.
The UK housing market, particularly in London, is experiencing a significant bottleneck as buyers rush to finalize transactions before a stamp duty increase takes effect. With the added pressures of rising living costs and a complicated home-buying process, many buyers are struggling to meet the deadline, while sellers face the challenge of offering discounts to attract potential buyers. However, the recent rate cut by the Bank of England may provide some relief to buyers, potentially easing financial pressures shortly.
