The UK housing market faces a challenging start to 2025, as tax changes, geopolitical shifts and lingering uncertainty from the October Budget weigh on consumer confidence, according to insights from Tom Bill, head of UK residential research at Knight Frank.

The combination of a newly inaugurated US President, tax deadlines in April and the ongoing fallout from the Chancellor’s Budget is expected to create an atmosphere of caution among consumers and investors.

Mortgage approvals, which climbed to an 18-month high in October due to pre-emptive buying ahead of tax changes, may not sustain the momentum into the new year.

UNCERTAINTY

Bill says: “The first few months of 2025 will be marked by uncertainty as bond markets digest the Budget’s implications amid fluctuating economic data.”

Knight Frank has revised its 2025 forecasts slightly downward following a post-Budget rise in mortgage rates. Despite this, the firm still predicts modest price growth across the residential market.

The Budget’s emphasis on taxing the private sector to fund public spending has added pressure to sentiment, particularly after measures like increased employer national insurance and stamp duty adjustments were introduced.

Bill adds: “Business optimism has already hit its lowest point in two years, reflecting how fragile sentiment has become.”

MARKET DYNAMICS

The return of the nil-rate stamp duty band to £125,000 in April is set to increase bills for buyers by up to £2,500, with first-time buyers facing up to £6,250 in additional costs. This change is likely to create a surge in transactions ahead of April, followed by a slowdown, echoing patterns seen during the pandemic-era stamp duty holiday.

Meanwhile the introduction of the Temporary Repatriation Facility (TRF) in April 2025 is expected to have a significant impact on prime and super-prime property markets. Under this scheme, non-doms transitioning to the government’s residence-based tax system can bring money into the UK at favorable rates – 12% in the first two years and 15% in the third.

PROPERTY MARKET

James Quarmby, a partner in private wealth at Stephenson Harwood, says: “This policy will inevitably channel funds into the property market, but its effects will materialize gradually, starting in late 2025.”

Stuart Bailey, head of London super-prime Sales at Knight Frank, reports that buyers are already aligning their property searches to take advantage of the TRF. Similarly, some non-doms are expected to use the scheme to reduce their mortgage debt by injecting equity into their properties.