UK house prices saw their slowest annual growth this year in August, a trend that has prompted renewed calls for major property tax reforms. Experts suggest these changes could address affordability issues and stimulate market activity, but their potential economic impact remains uncertain.
The latest data from Nationwide Building Society highlights a deceleration in property price increases, with annual growth dropping to 2.1% in August from 2.4% in July. This stagnation, coupled with an ongoing rise in mortgage costs, paints a picture of a challenging housing market. Meanwhile, the government is reportedly exploring significant reforms to property taxes, hoping to invigorate the market while raising additional revenue.
Slowing Growth Amid Rising Mortgage Costs
The annual house price growth rate in August was the lowest recorded this year, according to Nationwide’s data. Prices decreased by 0.1% on a monthly basis, a sign of the market’s cooling after a period of rapid growth. The current average UK house price stands at £271,079, a figure that, while still high, is not seeing the same rapid increases as in recent months.
This slowdown is partly attributed to the steep rise in mortgage costs. The interest rate on a two-year fixed mortgage now averages 4.96%, significantly higher than during the post-pandemic period. As mortgage costs continue to climb, homeownership has become increasingly unaffordable, particularly for first-time buyers.
Robert Gardner, Chief Economist at Nationwide, emphasised that “house prices are still high compared to household incomes,” adding that raising a deposit remains a significant hurdle for many prospective buyers.
Property Tax Reforms: Key to Market Recovery?
Amid these challenges, discussions about overhauling the UK’s property tax system have gained momentum. Reports suggest that the government is considering measures such as abolishing stamp duty, introducing a national property tax, and revising capital gains tax relief for higher-priced homes. Some experts argue that such changes could ease market pressures by reducing transaction costs and making property transfers more fluid.
However, the proposed changes are not without controversy. Replacing stamp duty could cost billions in lost tax revenue, and the introduction of new taxes might face political and public opposition. The economic impact of these reforms remains uncertain, but Nationwide’s Gardner stressed that the UK needs a tax system that “allows people to move more effectively,” suggesting that the current system is hindering mobility and market activity.
