HOW HAS BREXIT AFFECTED THE UK PROPERTY MARKET?

27th July 16

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This has been a year of changes for the UK property market.  The raft of stamp duty increases introduced by the chancellor in April lead to a surge in property demand in March with investors scrambling to purchase before the increased taxes came into force.  April saw a softening of demand which was attributed by most market pundits to a reduction in investor purchases (who had rushed to purchase the month before) and a slowing of demand from owner-occupying buyers who were waiting to see the impact on the market of both the stamp duty changes and the Brexit vote. 

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Within the first day of the Brexit vote, a lot of pundits were predicting very sharp drops in the housing market with individuals choosing not to purchase in times of economic uncertainty with a looming fear that house prices might fall.  Luckily this does not seem to have transpired.  While there were many house purchases reported to have fallen through in London in the days following the Brexit vote, this does not seem to have applied to the wider UK property market - particularly in the North of the country where purchasers tend not to buy on the assumption that house prices will drastically increase within a short space of time. 

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Data reported by Rightmove shows that while the number of new mortgages for house purchases is slightly down compared to this time last year, it is even still at the same sort of level witnessed in July 2014.  Further, since an initial drop in April (after the stamp duty changes), the number of new property transaction completions has steadily increased month on month – even despite the Brexit vote. 

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Obviously the longer this situation continues, the more confidence the market will gather as buyers realise that the dire media predictions about the housing market might have been overdone.  This commentator expects that with the possible exception of the Greater London area, the wider UK property market will remain largely steady and show a small inflationary rise over the year, as might be expected all other things being equal.  Time will tell.

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A SLOWING DOWN OF THE UK PROPERTY MARKET?

April 2016

 

The early parts of 2016 saw a spike in both the number of house sales and a rise in prices across the country, but early indications are that this has slowed with the beginning of April and a recent RICS report suggests that there may be several factors behind this with uncertainty causing a “wait-and-see”approach from would-be buyers. 

 

Following a rush in March for Buy-To-Let investors to get their purchases completed before the introduction of the higher stamp duty rates on second homes, April seems to have been a fairly quiet month for the property market so far.  It may be that the higher stamp duty rates are putting off would-be investors (particularly in London where prices are high and the BTL market is particularly buoyant).  Or, it might be that there is uncertainty as to the effect these changes will have on the market, and that savvy investors think it prudent to wait and see what direction prices go in if there is the expected decrease in both the number and the sale prices for BTL investments. 

 

Similarly, uncertainty over the EU referendum might be playing a part.  It is well documented that economies tend to suffer in the run-up to important elections or referendums as people wait and see before making purchases.  In the run up to the EU referendum, with growing uncertainty as to the outcome of the referendum and what the potential  impacts of a vote to leave could be, several key indicators of the economy are suffering – the value of the pound is now relatively low reflecting investor uncertainty – which also feeds into the property market. 

 

On a more positive note, history seems to indicate that where the property market tends to slow before referendums and elections, in general there seems to be a corresponding bounce in both the number of property sales and the sale prices following the event.  So if the current slow-down is due to uncertainty, and not to the tax hike on BTL investments, then a vote to stay in Europe could restore the property market’s previously strong performance.  This does however beg the question of what will occur if Britain votes to leave the EU – especially with the government talking about the possibility of it taking up to 10 years to restore stability to the UK economy if there is a Brexit.  One would assume that people will always need to have somewhere to live so one would expect a recovery of the housing market at some stage but finding data to help inform a prediction for when this would occur seems to be very difficult.  Time will tell. 

 

HOW WILL THE NEW STAMP DUTY INCREASES ON SECOND HOMES AFFECT THE PROPERTY MARKET

March 2016

 

In November last year, the chancellor George Osborne announced that there would be a 3% surcharge on stamp duty payable on second homes from April 2016.  The chancellor stated that the intention behind these changes was to increase housing supply and make it easier for people to get on the property ladder, but there has been a good deal of debate as to the wider effects of these changes. 

 

The proposed 3% tax hike on investment properties ostensibly aims to discourage residential Buy-To-Let property investors, thereby decreasing competition for residential properties, and thereby driving down prices and making it easier for owner-occupiers to get onto the property market.  A controversial part of this proposal is that it would only apply to smaller would-be landlords as companies already owning more than 15 rental properties would be exempt from the higher stamp duty surcharge. 

 

Landlords have (predictably) reacted very badly to this news.  With last year’s announcement that pensions could be taken as a lump sum rather than an annuity there has been a bounce in the number of prospective buy-to-let landlords with the higher returns of rental properties making rental investments more attractive than annuities or traditional savings vehicles.  This latest stamp duty change could very well be seen as an attempt to discourage would-be amateur landlords, who have since flooded the market. 

 

However, there is some discussion as to whether these changes will have the desired consequences.  For example, for BTL landlords, returns are very important, and the cheaper the house is purchased the better the overall return.  The idea that landlords investors are currently out-bidding residential purchasers is therefore somewhat questionable.  In general, BTL landlords have often been seen to pick up properties at the bottom end of the market, either in run-down condition, or in run-down areas, which are not seen as desirable by owner-occupiers who are able to get a mortgage. 

 

As a result, these changes might end up having consequences only on the bottom end of the market.  One might predict that potential landlords who are willing to pay the higher stamp duty charges might compensate for it by decreasing the price they would be willing to pay for properties, and one would therefore expect both prices and demand for this type of property to fall.  With less landlords at the lower end of the market, and therefore less supply of rental properties, perhaps the government is hoping that soaring rental prices will then compare favourably to the price of a mortgage on the same property.  However, it seems that the government’s changes are likely to encourage individuals to be less picky about what they buy rather than having more choice and higher living standards in their housing.    

It seems that the problem at present is not that there aren’t enough properties at affordable prices for would be owner-occupiers (certainly in the North of England anyway) but rather that individuals would rather rent for longer and buy a pricier, but higher quality house in a better area.  On this basis one might argue that if the government really intended to better the housing supply then they would have been better to provide grants for housing developers working to improve the condition of current housing stock at the bottom end of the market, rather than penalising landlords.  But then again, perhaps this does not account for the estimated extra £1bn the government is expecting to raise from these changes.  Time will tell.  

 

RECENT PENSION RULE CHANGES TO BOOST THE BUY TO LET MARKET? 

July 2015

 

 

The major change to pension rules announced by Chancellor George Osborne in last year’s Budget allows new pensioners the freedom to spend, save or invest their pension as they wish- an opportunity that could tempt many new pensioners to plunge their lifetime savings into the property market and become buy-to-let landlords.

 

Without the obligation to purchase an annuity, a buy-to-let property might make an ideal retirement investment for several reasons. By contrast to annuities where the monthly return was notoriously poor, buy-to-let landlords can expect a much higher return on investment in addition to potential capital gain if the market rises before the property is either sold or passed on as an inheritance. 

 

With experts constantly referring to young people as ‘generation rent’ , a new pensioner landlord should not find it difficult to find a tenants to pay a monthly rent. Over the past two decades, the private rented sector has almost doubled and statistics from the National Housing Federation indicate that one in five households are currently rented from a private landlord.

 

On this basis a buy-to-let property would seem to be an ideal retirement investment and some commentators are predicting a sharp rise in demand for buy-to-let properties, driving up purchase prices and strengthening the property market. However, others are less optimistic warning that old age pensioners might not want the hassle of managing the property and potentially footing the bill for property repairs or losing income entirely if the property becomes empty. This could be exacerbated in cases where the pension pot is not large enough to buy the property out right and a mortgage may be required. For example, a landlord with a mortgage would face an obligation to pay the mortgage even if the property is empty and not producing rental income. 

 

The new pension rules were introduced in April and it remains to be seen what impact this will have on the buy-to-let market - only time will tell. 

 

 

STAMP DUTY CHANGES BOOSTING THE HOUSING MARKET

Febuary 2015

 

The start of 2015 has seen the highest number of registered visits to estate agents since 2004. The National Association of Estate Agents believe that this is because of the recent change to stamp duty brought in December 2014.

 

Mark Hayward, managing director of the NAEA claims “December is typically a quieter month for the property market, however it would seem prospective home buyers have been left feeling encouraged by the stamp duty reforms, while agents have also reported activity in the middle price market picking up. The changes are obviously in the beginning stages of giving the market the boost it needs, making buying more affordable for many.”

 

Due to the change in system, a fifth of Estate Agents report that they saw more property sales in the £251k to £925k brackets as the new stamp duty system offers the highest savings.

 

The old stamp duty system meant that the entire cost of a property was taxed according to the highest tax band it fell into- each band increasing sharply at each threshold. The steep change in rate was most unpopular where 3% kicked in, which meant that while a home costing £249,000 would cost buyers stamp duty of £2,490, anyone spending just £2,000 more would attract duty of £7,530 for a purchase price of £251,000.

 

The new system provides no big leaps in duty as only the difference between the threshold and the purchase price is subject to the relevant stamp duty.  So, for example, if an individual now pays £251,000 for a property, only the £1000 over the £250,000 threshold is subject to the higher stamp duty rate. 

 

Despite this, a recent report from the Office for National Statistics shows that the market for first-time buyers has a long way to go before it reaches the sales seen a decade ago. Through the 1980s and into the 1990s, one in three 16-24 year olds were able to afford their own home compared to only one in ten first time buyers now.

 

Mortgage lenders are starting to free up more funds to target those with a small deposit, having contracted their lending to this sector in recent years. HSBC said that at the start of February it will launch the lowest two-year fixed-rate mortgage on the market for those with a 5% deposit to put down. The rate will be 4.39% with a £99 fee.

 

 

 

Mortgage Market Changes

March 2014

 

Fears are growing that the recommendations following the recent Mortgage Market Review (MMR) may have unintended consequences on the UK property market.

 

Chief executive of mortgage brokers, SPF Private Clients, Mark Harris, thinks that the more rigorous approach to affordability checks may result in higher costs for mortgages, which will need to be footed by customers. He also fears product innovation will be held back by the move, which is due to come into effect from April 26th 2014.

 

While there is a growing consensus that mortgage lenders should be checking customer’s affordability more carefully before lending, there are also fears that the law of unintended consequences may come into force. For example, the more stringent checking process may hold up buying and selling chains in the market: under the terms of the MMR, around 50% of borrowers will be required to meet a qualified mortgage advisor and this will lengthen the sales cycle, as further meetings may also be needed.

 

The hardest hit by the changes will be families and single earners, while couples with no children should not face too many problems. Households looking to remortgage could also encounter difficulties as they may not be able to move onto another deal, effectively leaving them prisoners in their own homes, Mr Harris stated.

 

Adrian Anderson, director of the mortgage brokerage Anderson Harris, pointed out that many of the MMR recommendations have already been applied and used by some mortgage lenders. However, he thinks the formal rolling out process could have a dampening effect and slow the market down for a few months- he adds that this will create problems for the busier housing markets such as London as it will have an impact on the lenders ability to deliver.

 

 

 

Vince Cable casts uncertainty on the Help to Buy Scheme

Jan 2014

 

The new Help to Buy Scheme introduced by the government in October 2013 enables new buyers to purchase properties with just a 5% deposit. The scheme seems to have provided a notable boost to the housing market: RBS and Lloyds banking groups now report that 750 homes have been bought through the scheme with 6,000 people having made offers on properties. However, the scheme is now under scrutiny by Liberal Democrat Vince Cable who thinks this has boosted house prices too quickly in London and the South East, with much more modest results in the North of the country.

 

Mr Cable proposes that the scheme should be reassessed in light of a more significant house boom in London and the South East. He says that “the scheme was conceived in very different circumstances” and therefore should be re-examined. He adds “there is now a raging house boom in London and the South east but not other parts of the country” and that this has created a problem because the boom could get “out of control” unless interest rates are raised – but doing this would “hit those parts of the country which are not yet fully recovered”.

 

The Help To Buy Scheme now divides opinion as it divides the country – between those who welcome the increased activity in the market in the North of the country, and those who fear a housing bubble in the South. In light of this it is perhaps unsurprising that the government might now look to re-examine and potentially end the scheme. However, this leaves the housing market in a great deal of uncertainty as to what to expect in the near future. There seems to be little doubt that withdrawing the Help to Buy Scheme would depress house prices, and while the government deliberates as to whether to continue the scheme, it may be that some buyers choose to wait and see, rather than buying now, using the time to save up for higher deposits so that they can buy at lower prices after the withdrawal of the Scheme. It is to be hoped that the government makes its mind up quickly in this matter as uncertainty could act to decrease the number of property transactions, particularly in Northern areas where the upturn in the market is most fragile.

 

 

 

WILL SALE FALL THROUGH RATE INCREASE WITH THE GOVERNMENT’S HELP TO BUY SCHEME?

November 2013

 

 

With the government’s new Help to buy scheme put in place recently, the housing market seems to be gaining more confidence as more and more houses are being put on the market. However, with increasing numbers of potential homeowners keen to buy before predicted house price rises, analysts are predicting an increase in the number of sales falling through with a rush of potential buyers settling for the first good deal they come across.

 

A house sale fall through can be dependent on the number of buyers in the chain. Recent statistics show that when there are three buyers in a chain, only 40% of sales actually reach completion- then if there are four buyers only 14% reach their completions. Some recent reports show that there are plenty of factors that will stop a sale from completing.

 

According to Zoopla, it should take on average 12 weeks to buy or sell a home, giving potential buyers/sellers a long time to actually change their minds about the property and collapse the whole chain. For example, they may find a property and agree to buy it, but with more and more houses coming on the market it won’t take long for another preferred property to come available – and the legal system in England and Wales means that no purchase offer is binding on the buyer until contracts are exchanged. So if a potential buyer rushed into making an offer prematurely and later finds that there is a better house for sale on the same street, there is no penalty for pulling out of the original deal.

 

Other house sales may fall apart through buyers being unable to obtain financing. For example if a problem with the house comes up on survey such as a structural issue and a mortgage provider won’t lend it means weeks of preparation to move or to sell has been wasted. Or other issues with rejection by a mortgage lender can be based on a poor credit score or negative items on a credit report.

 

However, despite this, the average house sale fall through rate in quarter 2 of 2013 was 19.77%, almost exactly 10% lower than in the corresponding quarter in 2012. These fall through rates have improved due to an increase in cash buyers. Market Analyst at Move Now, Donna Houguez thinks that previously, buyers tended to make offers and then secure a mortgage, often unrealistically, now we find that people making offers are much more committed – they are either cash buyers or they have a mortgage agreement in principle in place’.

 

 

 

GOVERNMENT BRINGS FORWARD HELP TO BUY SCHEME

October 2013

 

Prime Minister David Cameron has revealed that the flagship Conservative Help to Buy Mortgage scheme will be launched next week- three months earlier than originally planned. The scheme will make it much easier for people to afford a deposit on homes worth up to £600,000. The second phase of Help to Buy sees the state guarantee 15 per cent of a mortgage, meaning buyers only needs to put up 5 per cent of a property’s value. The scheme will see the Government taking on the bulk of the risk of high loan-to-value mortgages, encouraging lending with state guarantees of up to £12 billion on £130 billion-worth of homes.

 

 

 

 

RICS PROPOSE A CAP ON HOUSE PRICE RISES

September 2013

 

 

The Royal Institution of Chartered Surveyors (Rics) said that a 5% annual rise should trigger caps on how much people could borrow relative to their incomes or the value of the property- they say the Bank of England should use its powers to limit house price increases to 5% a year to ‘take the froth out’ of the price booms.

 

Though, it is not suggesting that sellers should face a limit on how much they could charge for their homes.

 

There has been extensive debate during the week about the future of the UK housing market and the potential for government schemes to create an artificial price bubble. Some forecasters are suggesting increases in house prices could break through the 5% barrier this year, owing to increasing demand from first-time buyers at a time when the number of homes for sale remains low.

 

Senior economist at Rics, Joshua Miller, said that it was important to stop any debt-fuelled house price advance. “The Bank of England now has the ability to take the froth out of future housing market booms, without having to resort to interest rate increases. Capping price growth at, say, 5% is one way of doing this,” he said.

 

“This cap would send a clear and simple statement to the public and the banking sector, managing expectations as to how much future house prices are going to rise. We believe firmly anchored house price expectations would limit excessive risk taking and, as a result, limit an unsustainable rise in debt.

 

”The Bank’s governor, Mark Carney, told MPs on Thursday that the Bank was vigilant on house prices but that parts of the country had not seen any recovery in the housing market. This involves asking banks to limit how much they can lend to individuals and making them set aside more capital if they want to carry on providing mortgages.

 

Simon Rubinsohn, chief economist at Rics, said that the cap was more of a “speed bump” for the housing market “so people wanting to enter the market are aware of some of the risks”. He said that the 5% level could be debated and there needed to be a regional dimension to reflect housing market activity in different parts of the UK. Rics members, including estate agents, wanted a stable market, rather than a volatile one, he said, adding that he did not believe there was a house price bubble at present.

 

However, Sir Howard Davies, former deputy governor of the Bank, said that a cap would not work- he said that the main problem we are having is because we aren’t building enough homes.

 

Recent house price surveys show increases in prices, but this was compared with some drops a year ago. The Halifax survey said that prices had risen by 5.4% in the year to August, while the Nationwide said house prices in August were rising at an annual rate of 3.5%.The Nationwide compares prices in one month with the same month a year ago. However, the Halifax compares a three-month period with the three-month period in the previous year. On the Halifax’s measure, the average price of a house also went through the £170,000 mark for the first time in five years.

 

However, the figures are still well below the peak of the market in August 2007, when the average price was almost £200,000. This is a UK average figure, driven by London and the South East of England. Some parts of the country have seen little house price growth or, in some areas, price falls. Figures from the Office for National Statistics show that, excluding London and the South East of England, UK house prices increased by 1% in the 12 months to June.