Housing market activity looks set to slow in the coming months following the recent Budget.

Mortgage borrowing have been creeping up since 30 October thanks to the government’s plan to borrow and spend more, and that will almost certainly have an impact on demand for housing across the UK.

The five-year government bond yield was trading above 4.4% last week, which compares to less than 3.9% at the start of October.

A higher yield on government debt typically means lower demand among investors because of risks around creditworthiness, which pushes mortgage costs higher.

The yield is notably above the estimated figure issued by the Office for Budget Responsibility alongside the Budget. It said the five-year yield would break through 4% in 2027 before rising to 4.4% only in the second half of 2029.

“Three weeks after the Budget, the government must still be watching the reaction of financial markets very attentively,” said Tom Bill, head of UK residential research at Knight Frank.

“Last week, money markets were pricing in a bank rate of between 4% and 4.25% in December 2025, which compared to an expectation of less than 3.5% just two months ago, as the chart shows,” he explained. “None of this is good news for the mortgage market and lenders have been edging rates higher in recent days.”

According to Knight Frank, it will take a few more months before the full impact is felt in the housing market, which has recently seen strong levels of activity following rate declines in late summer and early autumn. UK transactions in September were at their second-highest level in 18 months.

Bill continued: “Despite the note of optimism sounded in last week’s RICS survey, we expect growing downwards pressure on prices and transaction volumes as the effect of higher rates takes its toll.

“The problem with this period of ‘indigestion’ is that nobody knows how long it will last or what it could morph into.

“The election of President Trump in the US has only added a layer of unpredictability around what will happen next in global bond markets.”

Meanwhile, prime residential markets, where equity and cash play more significant roles, face uncertainties of their own, Knight Frank reports.

Bill pointed out that the government’s plans replace the non dom regime will make the UK look relatively uncompetitive versus countries like Italy for foreign investors and entrepreneurs.

He commented: “The Foreign Investors for Britain lobby group is still talking to the government about the merits of introducing a parallel Italian-style flat tax to ensure capital stays in the UK.

“However, the speculation has already had negative consequences for the country’s finances. If you wished to assert there was a £22 billion black hole in the UK economy, it has got £140.3 million bigger since March thanks to lost stamp duty revenue for property transactions above £5 million, Knight Frank estimates show.

“Former chancellor Jeremy Hunt first raised the prospect of abolishing the non-dom regime in his spring Budget and there has been heightened nervousness around the taxation of wealth and property ever since.”

Using forecasting software, Knight Frank compared the expected and actual number of offers made above £5m between March and October this year. The estate agency then calculated the number of lost transactions across the whole UK market.

Knight Frank estimated a shortfall of 107 deals between £5m and £10m and 35 transactions above £10m, leading to the theoretical loss in stamp duty revenue of just over £140m. A total of £11.6bn in stamp duty was collected in the 2023/24 financial year.

“We are sadly not surprised by the reduction of stamp duty between March and October – dates which bookmark the Conservative government’s announcement to abolish the non-dom rules, and the Labour Budget on October 30^th – which took abolition to its ideological extreme,”  Leslie MacLeod-Miller, CEO of Foreign Investors for Britain, told Knight Frank.

Its own survey, compiled by Oxford Economics, found that non-doms paid an average of £890,000 in stamp duty over the five-year period to 2023/24 and £800,000 in VAT during the 2023/24 financial year.

For a government worried about financial black holes, Bill believes that the government will need to keep watching foreign investors and bond traders closely to ensure its revenue-raising plans are not thwarted.