For many, the real estate market has felt stuck in a perpetual cycle of hesitation awaiting a signal indicating change.
This year’s Autumn Budget was the latest bump in the road for investors, with the potential to further weaken an already subdued market.
Jame Little, Associate in the Valuation team at Vail Williams, explores the potential impact of yesterday’s Budget announcement on the UK real estate market.
The run up was mired in speculation over proposed tax increases causing the contraction of sentiment across the commercial real estate market. Most notably, the RICS’s October Commercial Property Monitor had the lowest sentiment the index has recorded since the end of 2023.
As the bellwether of returns, investors will now look to the gilt market to provide an indication on the direction of travel. Whilst the pound has fallen slightly, gilts are holding steady (Thursday 27th November), as markets continue to digest the budget outcomes.
For many analysts, fiscal policies of the Budget were already priced into gilt yields following their expansion which peaked in September reaching a 27 year high before contracting, despite uncertainty over fiscal policy.
Overall, the bond market was reassured by the Chancellor increasing her headspace to £21.7bn up from £9.9bn.
This will make the strict fiscal policies less of a millstone for the government and create a more stable environment not at the mercy of bond vigilantes. This, along with the 0.3ppts reduction of CPI in 2026, will continue the rate cutting narrative and increase liquidity in the real estate market.
Residential Markets
For residential markets, the cloud of budget speculation led new buyer enquiries to depreciate to a net balance of -24% recorded in the October RICS Residential Market Survey.
This lack of activity was pronounced at the top end of the market. In contrast needs-driven buyers continued to fuel demand for more affordable houses. Post-Budget analysts now anticipate a pickup in activity, as homebuyers have certainty over taxation and can manage their finances accordingly.
Despite the increase in activity, the introduction of the “mansion tax” will only obstruct transactions nearing the £2m bracket for what seems to be little return for the government.
The main question will be if the liability will create downward pressure on house prices or lead homeowners to devalue their homes.
Another consideration is the valuation process leading up to 2028. Houses within this price bracket are traditionally complex to value due to the lack of uniformity between properties and the impact that economic volatility has on market participants, causing larger fluctuations in value.
We also anticipate the 2% tax increase on property to have a material impact. Reduced returns for landlords will place pressure on the rental market, as private landlords look to offset losses and market supply contracts increasing demand.
Commercial Markets
The UK is known for its infatuation with the residential housing market, acting as a driver of sentiment in the wider economy. Despite housing news grabbing the headlines, the commercial real estate (CRE) market paints a more nuanced picture.
CRE net lending data for August 2025 reached £2.5bn, which is the strongest monthly figure since May 2020.
Despite economic headwinds and uncertainty, cheaper capital has incentivised some borrowers. This was led by refinancing and large corporates with a gap remaining in the market for small to medium enterprises (SMEs).
Inflationary policies such as the increase in minimum wage and freezing national insurance will add further downward pressure to a struggling SME market which has seen underinvestment.
Recent research from Allica bank, revealed a gap of nearly £65bn in SME lending over the last 25 years, with small businesses investing at only a third of the level of corporate businesses.
This speaks to an economic environment where the UK now has the lowest business investment rate in the G7. It also reflects a lending market which places emphasis on low risk, well-collateralised lending, primarily sourced from real estate.
For a service sector which makes up circa 80% of the economy, this collateral is increasingly difficult to obtain for SMEs who are less reliant on this asset class. As a result, greater liquidity is noted in the prime real estate markets, as large corporates find it easier to leverage debt and are in positions to withstand current rates of interest.
Although the Autumn Budget delivered few transformative measures for property, it has at least removed a layer of uncertainty that has held back decision-making in recent months.
Firmer expectations around rates, greater fiscal headroom and a clearer tax landscape may help unlock activity as confidence slowly rebuilds. For investors and occupiers willing to take a strategic, long-term view, the next phase of the cycle may present opportunities as the market begins to re-adjust.
