In a rush to avoid increased stamp duty rates in April, buyers are hastening to finalize contract exchanges.

Numerous property transactions were delayed pending the budget announcement on October 30, with hopes of introducing favorable measures for the housing market.

However, immediate changes included rising stamp duty rates from 3% to 5% for additional properties and the discontinuation of the stamp duty holiday designed to bolster the market. Consequently, starting April 1, buyers will incur duty on property values exceeding £125,000 rather than the previous £250,000 threshold. Additionally, the upper limit for first-time buyers decreases from £425,000 to £300,000.

Concerns have mounted regarding elevated government borrowing and increased national insurance contributions, driving fears of inflation and rising interest rates, with mortgage costs already starting to climb.

This raises the question: Is now a favorable time to purchase? Here’s an overview of the current situation.

Current House Price Trends

Across the UK, the average house price experienced a slight dip of 0.3% from August to September, settling at £291,828, although year-on-year, this represents an increase of 2.9%. Since January 2019, when the average price was £228,314, prices have surged by 28%.

According to estate agency Knight Frank, projected price growth for the upcoming year is revised down from 3% to 2.5%, attributing this change to rising borrowing costs. Similarly, Hamptons has adjusted its five-year growth forecast from 20.5% to 19.3%, anticipating a 3% rise next year.

Despite the Bank of England reducing the base rate from 5% to 4.75% recently, further cuts appear unlikely, especially as inflation for the year ending in October exceeded the government’s target, climbing to 2.3% from 1.7% in September, largely due to escalating energy prices.

The Market’s Current Activity

Alastair Cochrane of Stirling Ackroyd reports a 25% increase in agreed property sales this month compared to last year. He remarks, “There was a notable rebound as the budget was generally perceived as less detrimental than anticipated. With recent events like the US election and Bank of England’s rate announcements settled, market activity has been unexpectedly robust.”

Real estate brokers indicate a surge in properties listed for sale as sellers aim to finalize transactions before the impending stamp duty rise.

Mortgage broker Andrew Montlake suggests it could be an opportune moment to buy. Although it’s possible mortgage rates may drop next year, he warns that delays might lead to increased competition along with potentially higher house prices, necessitating larger loans.

According to the property data firm Landmark Information Group, the average duration for a sale to complete is 123 days, indicating a time crunch as the March 31 deadline approaches.

Are Mortgage Rates Increasing?

Offers for mortgages under 4% have nearly vanished due to expectations that interest rates will remain steady for an extended period. The average rate for a two-year fixed mortgage has risen from 5.39% on November 1 to 5.54%, resulting in an additional £216 in annual repayments on a £200,000 loan over 25 years.

The rising inflation rates suggest that the Bank of England’s monetary policy committee may refrain from lowering its base rate of 4.75% in its next meeting. After a series of cuts beginning in August and November post a significant rise starting from December 2021, further reductions appear improbable.

Nonetheless, lenders typically roll out mortgage deals in early January and February to help meet sales goals, which could lead to heightened competition in 2025, according to Peter Stimson from MPowered Mortgages.

While mortgage deals are usually valid for six months, buyers can lock in a rate now and switch to a better offer later if available.

Implications for First-Time Buyers

Moneybox Mortgages reports an 8% uptick in loan applications for first-time buyers in the last three weeks compared to the previous three weeks prior to the budget announcement.

Felicity Holloway from Moneybox notes, “Many prospective buyers who were ready to purchase but waiting for lower mortgage rates have now accelerated their search to beat the changes in stamp duty regulations.”

This deadline has spurred individuals like Rhys Crookes to expedite their home-buying process. Crookes and his partner, Maddie Green, both 23, are looking for a three-bedroom property in their Hampshire village, which is priced around £400,000. Purchasing before April would help them save £5,000 in stamp duty costs.

Crookes commented, “We weren’t rushing before, but the impending deadline has pushed us to act faster; it’s a considerable expense that could otherwise diminish our deposit or the budget for furnishing our new home.”

Interestingly, first-time buyers might find themselves facing less competition from landlords due to the additional homes surcharge. Amy Reynolds from the estate agency Antony Roberts recounted a recent case where an investor withdrew interest in a one-bedroom flat in East Sheen after the surcharge took effect, allowing a first-time buyer couple to secure it for £390,000.

Market Activity for Upsizers and Downsizers

In contrast, the market for larger homes is experiencing a slowdown, as individuals needing more significant mortgages to upsize are discouraged by the higher borrowing costs.

Data from UK Finance revealed that 202,520 new mortgages were approved for home movers from January to October, reflecting a notable decrease from the 368,160 approved during the same period in 2021 when interest rates were lower.

Cochrane remarked that lowering rates could instigate movement in the market; however, the current range of 4.5% to 5% poses challenges for buyers. He anticipates an increase in sales of larger homes early next year, possibly after current owners seeking to downsize “enjoy one last holiday season in their homes.”

Estate agency Savills predicts a gradual increase in movers from 280,000 in the upcoming year to 350,000 by 2027 as mortgage rates are expected to eventually decline.

Are Landlords Exiting the Market?

Although there isn’t a significant mass exit among buy-to-let owners currently, trends suggest a gradual retreat from the market as higher mortgage rates and reduced tax reliefs take effect. UK Finance reports a decline in buy-to-let loans from a peak of 2.06 million in November 2022 to 1.95 million in September.

Notably, around 32% of homes currently listed are chain-free, according to property website Zoopla, often consisting of properties previously utilized as rentals.

Reynolds highlighted a landlord in possession of a one-bedroom flat valued at about £350,000 planning to notify her tenant in January with the aim of selling before the March 31 deadline.

Other landlords may also consider selling in anticipation of the Renters (Reform) Bill, which is progressing through parliament and has the potential to eliminate landlords’ rights to issue no-fault evictions.

Cochrane remarked, “This could serve as a significant motivator for landlords contemplating a larger market exit.”

Landlords Finding Market Viability Challenging

Rebecca Booker and Simon Read share plans to sell their two rental properties within the coming year, citing the financial impracticality of continuing as landlords.

Residing in Leighton Buzzard, Bedfordshire, they own two properties in Ramsgate, Kent. Booker purchased their first property, a two-bedroom terraced house, for £128,000 in 2013 with inherited funds, and the couple subsequently acquired another for £160,000 in 2015.

They aim to sell the initial property before their current five-year fixed mortgage deal expires in March. Presently, they pay £250 monthly, but recent interest rate inquiries suggest that even the lowest offers would triple their payments. Although they receive £900 monthly in rent, expenses such as letting fees, insurance, and maintenance threaten to eliminate their earnings entirely.

Booker expressed, “A significant maintenance issue could cost us more than the income we generate from renting. You can’t keep raising rents like traditional businesses because tenants simply can’t manage it.” She expressed an intention to offer the property to first-time buyers as she wishes to assist someone in entering the housing market.

Future plans involve listing their other rental property after the first sale goes through.

Booker concluded, “We would love to continue letting property if it were financially feasible, but it’s just not sustainable anymore.”