House prices hit record high but Halifax predicts cooling UK demand

Average for October reaches £270k but lender expects interest rate rises to affect borrowing

Halifax said the average cost of a home rose by 0.9% in October, the fourth month in a row in which prices have risen. 

UK house prices rose for a fourth month running in October, climbing above an average of £270,000 for the first time on the Halifax measure, but the mortgage lender predicted a cooling of the market in the months ahead if the Bank of England raises interest rates.

Halifax said the average cost of a home rose by 0.9% on the previous month, after rising by 1.7% in September, adding more than £2,500 to the value of a typical British home.

It pointed to several market drivers, including first-time buyers supported by help with deposits from their parents, improved access to mortgage deals and low borrowing costs.

“One of the key drivers of activity in the housing market over the past 18 months has been the race for space, with buyers seeking larger properties, often further from urban centres,” said Russell Galley, managing director at Halifax. “Combined with temporary measures such as the cut to stamp duty, this has helped push the average property price to an all-time high.”

House price growth continue to remain strong despite the phasing out of the government’s stamp duty holiday at the end of September. The annual rate of house price inflation – 8.1% compared to the same month last year – was the strongest since June.

Wales continues to experience the strongest house price inflation in any UK nation or region, climbing 12.9% in October to an average of £198,880. The average price of a property in Scotland rose 8.6% year-on-year to £190,000.

In England, the north-west has returned to being the strongest-performing region, overtaking the south-west, with a rise of 10.4% – the highest rise for four months – and an average price of £205,881.

London continues to show the weakest growth: house prices rose just 0.8%, a fall from 1% in September, the lowest level seen since February 2020.

While the Bank of England decided on Thursday to keep interest rates at historic low levels, Halifax expects imminent rises and therefore an increase in borrowing costs for homebuyers.

“With the Bank of England expected to react to building inflation risks by raising rates as soon as next month, and further such rises predicted over the next 12 months, we do expect house-buying demand to cool in the months ahead as borrowing costs increase,” said Galley. “That said, borrowing costs will still be low by historical standards, and raising a deposit is likely to remain the primary obstacle for many.

“More generally, the performance of the economy continues to provide a benign backdrop to housing market activity. The labour market has outperformed expectations through to the end of furlough, with the number of vacancies high and rising relative to the numbers of unemployed.”

'House prices hit record high but Halifax predicts cooling UK demand' by Mark Sweney, https://www.theguardian.com/money/2021/nov/05/house-prices-hit-record-high-as-halifax-predicts-cooling-uk-demand 

Capital gains tax could ‘be brought into line with income tax rates’

Capital gains tax (CGT) increases could be around the corner as the chancellor Rishi Sunak looks to find the money needed to cover the government’s unprecedented spending and borrowing during the pandemic.

Given that the prime minister Boris Johnson has already ruled out a return to “austerity” in public spending, this money will have to come from somewhere.

There has been speculation for some time that CGT rates would increase.

Anthony Codling, CEO, twindig, commented: “As we enter 2021 chancellor Rishi Sunak is reviewing the structure of UK taxes. The pandemic has been costly in both emotional and economic terms, UK government debt is at an all-time high and eventually, these debts will need to be repaid. Taxes are therefore likely to rise.”

CGT is currently charged at 20%, but there are growing calls that it should be increased to 28% across the board or possibly aligned to income tax rates – at up to 45%.

The government’s tax adviser recently recommended that CGT be overhauled with proposals that could see the number of people hit by the duty increase sharply.

                                                          Anthony Codling

Rishi Sunak, who commissioned the review, is considering proposals by the Office of Tax Simplification (OTS), a Treasury-based body, to reform capital gains tax in the light of the economic and fiscal impact of the Covid-19 crisis.

The move has the potential to bring in an extra £14bn by reducing exemptions and doubling rates, according to the review.

Codling said: “Our working assumption is that capital gains tax rates will be brought into line with income tax rates, higher rate taxpayers will therefore pay higher rates of capital gains tax.”

Currently, a taxpayer’s primary residence is exempt from capital gains tax, but this could soon change for some homeowners.

He added: “We do not expect this exemption to be taken away completely, but we would not be surprised if the amount of exempt gain was subject to either an annual cap, a lifetime cap or a combination of both. This would be similar to pension relief where the amount of tax benefit in any one year is capped as well as the taxpayers lifetime tax benefit.

“Second-home and buy-to-let property gains are already subject to capital gains tax at a higher rate [28%] than the capital gains on other assets [20%]. We forecast that these rates will be equalised and reflect the taxpayer’s income tax rates.

“This will mean a tax rate increase for higher rate taxpayers and a lower tax rate for those with earnings below the higher rate tax threshold. However, it is likely that a capital gain on a property will move a lower rate income taxpayer into the higher rate tax bands.”

'Capital gains tax could ‘be brought into line with income tax rates’' by Marc Da Silva, https://propertyindustryeye.com/capital-gains-tax-could-be-brought-into-line-with-income-tax-rates/