Buy-to-let panic selling could flatten UK price growth

Government plans to increase Capital Gains Tax (CGT) are likely to give the UK property market a short-term boost but could restrain longer term price growth.

The Government's proposal to increase CGT for non-business assets including second homes from a flat rate of 18% to as high as 40% or 50% is likely to encourage more supply of property in the short term, especially in the mainstream market.

There are approximately one million buy-to-let properties in the UK and approximately 250,000 families who own second homes, so an increase in CGT is likely to have a widespread effect, according to independent London property search company, Sourcing Property.

Jo Eccles, director of Sourcing Property, says: "We have recently seen a gradual increase in the supply of new property coming onto the market.

"We may see a period of panic selling over the next few weeks as people seek to quickly dispose of second homes and investment property before the Budget is announced.

"Whilst some people may be able to secure a quick sale, it is likely that most will be unable to avoid the proposed tax increases as they are expected to be implemented with immediate effect, rather than next April, if they are put in place."

She said the increased supply will ease conditions for buyers who have been facing high competition in a climate of sealed bids and demanding vendors.

"Over the long term, it remains to be seen whether the proposed change in CGT - assuming it is introduced as planned - will have a wider impact on the UK property market as a whole.

"There are concerns that it may reduce the appeal of buying UK property for investment purposes and we may see would-be buyers turning to alternative assets instead," says Eccles.

She said the central London market, largely funded by cash, could be particularly susceptible to a CGT rise. However, on a positive note, sterling remains low so UK property continues to look cheap to foreign buyers.

"This has been evident in our own client mix over the past 12 months, with a large proportion of the clients we represent having been overseas buyers based in Australia, Dubai and across Europe," says Eccles.

"They have typically engaged our services to assist them in purchasing either a buy-to-let investment or a London base, with budgets ranging from £400,000 - £1.5m. Generally, their motivating decision to buy has been driven by the favourable exchange rate, therefore, we anticipate a continued demand from overseas buyers over the next 12 months."