House Prices: Key Factors to Watch in a Stabilising Market

14 Oct

As the UK property market begins to stabilise, there are a few key legal and economic trends to keep an eye on, particularly in light of recent data. Lower mortgage rates and an increase in housing demand have injected new life into the market, but what does this mean for buyers, sellers, and landlords from a legal perspective?

The latest figures from Zoopla show a 25% rise in sales agreed, driven by annual house price inflation of 0.7%, lower mortgage rates, and increasing supply of properties. However, various legal implications—ranging from landlord taxes to consumer protection laws—are shaping this dynamic market.

1. Lower Mortgage Rates: Implications for Buyers and Lenders

• With the lowest mortgage rates seen in 15 months, confidence has returned to the market, offering buyers more financial flexibility. This is particularly significant given the sub-4% mortgage deals being introduced, as noted by Propertymark’s Nathan Emerson. Mortgage agreements are governed by UK contract law and subject to regulations set by the Financial Conduct Authority (FCA). Borrowers need to ensure they understand the terms of their mortgage agreements, especially as variable interest rates may fluctuate.
• As lenders regain confidence, buyers will need to pay attention to the fine print in mortgage contracts, particularly with respect to affordability tests and interest rate caps.

2. Landlord Tax Changes and Property Supply

• The growing supply of properties for sale—up 12% year-on-year—has been partly attributed to higher buy-to-let mortgage costs and anticipated tax increases on landlords. Speculation ahead of the October Budget has prompted many landlords to sell off their investments, contributing to the 32% of chain-free properties now on the market.
• For landlords, potential capital gains tax changes and increased council tax for second homes represent significant financial considerations. These developments may encourage further offloading of properties, especially in areas like Cornwall, where double council tax rates are being introduced for homes left empty for more than a year. Under the Local Government Finance Act 1992, local councils can impose additional council tax charges on empty properties, meaning second homeowners and buy-to-let investors must weigh the cost-effectiveness of holding on to vacant homes.
• Additionally, tenant protection laws could affect landlords looking to sell occupied properties. Under the Renters (Reform) Bill, which is progressing through Parliament, landlords may face restrictions when seeking to regain possession of rental properties, especially if they are looking to sell.

3. Regional Variations and the Buyer-Seller Dynamic

House price trends vary significantly across the UK, with Northern Ireland seeing the highest price inflation at 5.7% and regions like the South West and South East experiencing slight declines. The average home in the North West of England saw the biggest growth, rising 2.1% to £198,100. These regional disparities may influence both legal and financial strategies for buyers and sellers.

For buyers in high-demand areas, especially those new to the property market, understanding consumer protection laws is crucial. Under the Consumer Protection from Unfair Trading Regulations 2008, buyers are entitled to accurate information about the property they are purchasing. Sellers must not misrepresent property details.

Sellers, on the other hand, need to adjust expectations around pricing. As noted by Nigel Bishop of Recoco Property Search, sellers offering properties at inflated prices may struggle to find buyers. In such cases, sellers should work closely with estate agents who understand the legal requirements of misrepresentation and non-disclosure in property transactions.

4. Future Market Trends: What to Expect Legally

Looking forward, the stabilising market presents a more balanced environment for both buyers and sellers. The increased supply of homes will likely continue, especially if landlord tax changes take effect. Meanwhile, lower borrowing costs should keep demand high, supporting more stable price growth into 2025. However, both sides of the transaction will need to navigate the changing legal landscape carefully.

To sum up

In summary, the UK housing market may be stabilising, but legal challenges remain. Whether it’s managing complex mortgage agreements, navigating landlord tax changes, or understanding regional price variations, buyers, sellers, and landlords alike must stay informed about their rights and responsibilities to make the most of this evolving market. With these factors in mind, the path to homeownership, or property investment, can be smoother and legally secure.

For more information or any questions, feel free to contact Abby Korn, Legal Director and Head of Residential Real Estate.