UK Housing Market Cools as Stamp Duty Changes Trigger Sharpest Price Drop in Two Years

Overview

In June, UK house prices recorded their sharpest monthly decline since February 2023, with a 0.8% fall, according to Nationwide’s housing index.

Averaging £271,619, this drop is seen as a market correction, driven by contrasting forces: while annual growth persists—up by 2.1%—the upward momentum has clearly weakened.

Nationwide’s chief economist, Robert Gardner, suggests this dip reflects a temporary lull caused by recent stamp duty reforms.

Why Are Prices Falling?

Several key factors are contributing to the downturn:

• Stamp duty reforms implemented in April have reduced tax-free thresholds in England and Northern Ireland from £250,000 to £125,000, and from £425,000 to £300,000 for first-time buyers.

• As a result, demand weakened sharply after a frantic rush to complete purchases before April’s changes took effect.

• A surge in property listings post-April has increased supply, placing further downward pressure on prices.

• This June slowdown follows a 0.6% fall in April, attributed to the same underlying market disturbances .

Stamp Duty Threshold Impact

Stamp duty adjustments have shifted negotiation dynamics across the market:

• Around 83% of UK buyers now face higher upfront costs than before April .

• First-time buyers—previously exempt up to £425k—are now taxed on properties over £300k.

• Existing homeowners are affected by a lowered nil-rate threshold, impacting transactions in the £125k–£250k band.

• These adjustments have caused sellers, especially in mid-market segments, to reduce asking prices to attract cautious buyers.

Regional Variations

Price changes have not been uniform:

• Northern Ireland led growth with a 9.7% annual increase, followed by Scotland (4.5%), Wales (2.6%), and England (2.5%).

• In prime London locations, properties over £500k have seen notable declines—Westminster reported a 4.3% fall, Paddington 1.3%.

• Meanwhile, more affordable regions (e.g., Wigan, Falkirk, Blackburn) have experienced modest year-on-year gains.

A Temporary Slowdown?

Despite the slump, analysts remain cautiously optimistic:

• Robert Gardner notes that strong labour market fundamentals—such as low unemployment and real wage gains—remain intact, and potential Bank of England rate cuts could revive affordability.

• Mortgage approvals rose in May for the first time in 2025, signaling a possible rebound.

• Matt Swannell (EY Item Club) and Rosie Hooper (Quilter Cheviot) view the dip as a pause—a “soft patch” that was predictable and will likely resolve as buyers adjust to new norms .

Mortgage Market Developments

Mortgage trends offer further context:

• Mortgage approvals climbed by 2,400 (+4%) in May to 63,000—marking the first increase of 2025.

• Average new mortgage rates dropped slightly to around 4.47%.

• The Bank of England has already reduced rates, with more cuts anticipated later in the year; this climate is fueling healthy competition among lenders .

Table: Key Market Indicators

For Buyers:

• The revision to stamp duty thresholds requires careful budgeting to avoid unexpected costs.

• With mortgage rates softening, affordable deals are emerging—though deposit requirements remain high.

• Timing is critical: May’s uptick in mortgage approvals may signal that market stabilization is underway.

• In regions where the tax bite hits hardest (e.g., London, South East), buyers could gain greater negotiating power due to increased supply.

For Sellers:

• Homes priced just above new tax thresholds may need price adjustments to attract cost-conscious buyers.

• Slow sales cycles are being experienced in the £300k–£425k price band, a segment hit particularly hard.

• The return to normal market activity depends on buyer adaptation to the revised tax environment .

Broader Market Context

• March surge in transactions (+62% for first-time buyers, +74% for movers) was triggered by SDLT changes.

• Following that rush, April and June have experienced a cooling phase, with typical post deadline settling observed .

• Rental pressures may rise due to a potential drop in buy-to-let investment—landlords likely increasing rents to offset extra SDLT costs .

• Experts forecast modest long-term price growth (2–4% through 2025) despite the recent fluctuations .

Outlook: What the Future Holds

The pause in price growth is not reflected in structural weakness:

• A strong labour market, wage growth outpacing inflation, and interest rate cuts on the horizon support housing activity .

• Once initial SDLT shock fades, buyer activity is expected to normalize, driven by affordability gains from lower mortgage rates .

• Markets like Auctions have seen short-term boosts due to deadline pressure; interestingly, they may continue benefiting from economic momentum and pricing flexibility .

• Rental markets may experience upward pressure, particularly as small landlords pass on increased costs .

Strategic Advice

• Buyers: Take advantage of record-low mortgage costs but adjust plans to include revised SDLT charges. Consider professional advice on deposits and affordability.

• Sellers: Price competitively, particularly if targeting buyers affected by new tax thresholds.

• Investors: Assess the changing landscape for rental yields as landlord costs grow.

• Policy makers: Watch for regions experiencing acute housing stagnation and consider targeted interventions.

Final Thoughts

June’s 0.8% drop marks a significant but temporary adjustment within the housing market. The sharp fall was driven largely by stamp duty policy changes triggering a flurry of activity, followed by a natural cooldown. Despite this, the combination of wage growth, mortgage rate improvements, and strong economic fundamentals suggests a recovery is likely later in the year. Stakeholders across the board—buyers, sellers, investors, and policymakers—should track interest rate decisions, transaction volumes, and regional variations closely.