Property and Bond Markets Face Pre-Budget Turbulence
Knight Frank warns that rising government borrowing costs ahead of the 26 November Budget could push up mortgage rates and create wider political fallout.
Gilt yields have climbed amid concern over Chancellor Rachel Reeves' limited fiscal headroom. The Office for Budget Responsibility put her buffer at £9.9 billion in March, about a third of its pre-Covid level, and one of the more pessimistic estimates, from the National Institute of Economic and Social Research, suggests £50 billion may be needed just to maintain it. The yield on the 30-year gilt recently reached its highest level since 1998.
When bond investors doubt that the public finances will balance, they price in extra risk and borrowing costs rise, as happened after the October 2022 mini-Budget. Speaking on Knight Frank's Housing Unpacked podcast, Pepperstone research strategist Michael Brown said the bond market will ultimately prevail and expects it to force through spending cuts, alongside tax rises that he warned could be counter-productive. Raising income tax, VAT or National Insurance would break a manifesto pledge, while the recent welfare rebellion shows the difficulty of spending cuts. Brown also set out a five-point plan to help the government out of its position.
Uncertainty is weighing on prime markets. Prices in prime central London fell 3.2% in the year to August, the widest decline since March 2021. Prime outer London prices rose 0.5% annually but fell 0.4% on a quarterly basis for the third consecutive month. Transactions across both markets were 6% lower than in the previous 12 months.
Knight Frank expects Budget speculation to change behaviour in the coming months, with some buyers and sellers hesitating and others accelerating plans depending on whether they are more concerned about stamp duty or capital gains tax. It regards stamp duty reform as too difficult to attempt and capital gains changes as politically toxic.
Source: Knight Frank Newcastle, original article (17 September 2025)
