A prominent investment analyst is warning that the prospect of multiple property tax changes and a potential overhaul of national insurance (NI) is creating significant uncertainty, leading to an earlier-than-usual slowdown in the housing market.

Alice Haine, of online investment platform Bestinvest by Evelyn Partners, suggests that while the market had just begun to adjust following the end of the stamp duty tax break, a fresh wave of tax speculation is now dampening activity.

The Pre-Budget ‘Wait and See’ Freeze

Haine notes that the typical seasonal slowdown in market activity ahead of Christmas appears to have kicked in earlier this year, as buyers and sellers are adopting a “wait and see” approach before the Chancellor’s fiscal statement on November 26th.

The primary cause of this anxiety is the discussion around potential income tax increases:

• Impact on Rental Income: “With reports that income tax rises may be introduced, something that also impacts rental income, landlords may be feeling particularly vulnerable,” Haine warns.
• The NI/Income Tax Swap: A major concern for non-working property owners is the idea, floated by the Resolution Foundation and reportedly under government consideration, of a simultaneous 2 pence cut to National Insurance (NI) and a 2 pence increase in income tax.
  • Disproportionate Effect: Haine explains that such a move would “disproportionately affect landlords, and pensioners, who are largely exempt from NI,” allowing the government to argue the change has minimal impact on working people, while simultaneously increasing the tax burden on property investors.

A Silver Lining for Savvy Buyers

Despite the overall uncertain outlook, Haine points to a potential silver lining for buyers, including those landlords brave enough to expand their portfolios in the current climate.

• Increased Bargaining Power: As buyer demand has slowed and the number of homes for sale has risen, those still looking to purchase are in a stronger position. Haine suggests that sellers keen for a fast move may “not only price their homes more competitively but also be more amenable to negotiation.”
• Improving Affordability: This enhanced buying opportunity is complemented by an “improving affordability picture,” with mortgage rates becoming more palatable following five Bank of England interest rate cuts since August last year.

The Rate Outlook: Caution Prevails

Overall, the picture remains one of uncertainty. While there have been significant interest rate cuts, Haine insists the Bank of England is maintaining a cautious stance on further reductions due to “sticky inflation.” However, a definitive drop in recent price rises could eventually “pave the way for further rate reductions.”