The Conservatives’ pledge to scrap the mansion tax highlights the growing ideological divide with Labor over home ownership and taxation, according to Knight Frank.
The Tories pledged this week to scrap the proposed mansion tax and inheritance tax on primary homes if re-elected.
The proposals, announced by Conservative leader Kemi Badenoch at the party conference in Birmingham, underscore the Conservatives’ intention to make low taxes and home ownership central to their economic agenda, according to Tom Bell, head of UK housing research at Knight Frank.
On the other hand, the Labor Party adopts a different approach, focusing more on the role played by the state in driving growth and raising revenues to rebuild public finances.
Bell said the Conservatives advocate cutting taxes to boost the economy, while Labor focuses more on government intervention and the need to raise taxes to create additional fiscal space.
Bell said the proposed council tax surcharge on properties worth £2 million or more, commonly referred to as mansion tax, had become a clear point of differentiation between the two parties.
The Conservatives have also pledged to scrap inheritance tax on primary homes, although the proposal sparked criticism from Paul Johnson, former director of the Institute for Fiscal Studies, who said it could discourage homeowners from downsizing.
Bell noted that Labour’s approach to taxing expensive homes would be familiar to those who have followed British politics since the global financial crisis of 2007-08.
The Conservatives’ clearly pro-aspirational message, which focuses on home ownership, represents a different tack, drawing comparisons with the political approach associated with Margaret Thatcher.
Although current opinion polls indicate that the Conservative Party will not win the upcoming elections, Bell said that the ideological division between the two parties has become clearer.
Reform UK has also expressed its opposition to the new taxes, although it has been less stringent on whether it would scrap the proposed mansion tax.
A Reform spokesperson told Knight Frank: “Reform is against new taxes in principle, and certainly against new taxes imposed without a mandate. As far as we know, a palace tax was not in Labour’s 2024 manifesto.”
The political debate is unfolding against a challenging backdrop for the housing market, with rising mortgage costs adding to uncertainty for buyers and homeowners.
The average five-year fixed mortgage rate reached 6% in October, its highest level since September 2023, according to Moneyfacts, after a rise in inflation expectations linked to the conflict in the Middle East.
Bank of England figures show mortgage approvals were 14% below the five-year average in August, while property transactions were flat against the same indicator, according to HMRC.
Bell said the full impact of higher borrowing costs would likely emerge gradually because mortgage offers typically last for up to six months. As offers that were secured before the conflict began expire, more buyers are facing higher prices, raising the possibility of lower transaction levels towards the end of the year.
Recent market indicators point to slowing momentum. The Royal Institution of Chartered Surveyors reported that the housing market was starting to lose pace, while Lloyd’s recorded no annual growth in house prices during the year to September.
Uncertainty surrounding interest rates and the upcoming Budget is also affecting higher value properties outside London.
In the rural market, which covers urban and rural homes worth more than £750,000, average prices fell by 4.2% in the year to September, compared with a 5% fall in the year to June, according to Knight Frank figures.
The number of exchanges in the sector fell by 2% in the third quarter compared to the previous year, while offerings fell by 10%.
James Cleland, head of country sales at Knight Frank, said demand remained selective as buyers and sellers waited for more clarity on taxes and borrowing costs.
“While well-priced properties are generating good interest, overall sentiment is fragile due to uncertainty about what will be in the Burnham administration’s first budget, as well as rising mortgage interest rates,” Cleland said.
“With concerns about taxes that may or may not rise in the Budget later this month, buyers and sellers are struggling to find a firm footing.”
