House prices in 2017, what are the predictions?
In the year that sees the UK begin its path to leaving the EU, there are many uncertainties around what the future holds, what Brexit will mean for the UK economy, and how in turn the housing market might react.
TAXATION STARTS TO BITE
Last year saw major changes in stamp duty, with those purchasing buy-to-let or second homes facing a 3% stamp duty surcharge. In Scotland, the equivalent tax, the Land and Buildings Transaction Tax, was also up-rated. This change has had a profound effect, particularly on the London property market, as the rate of stamp duty has reached 15% for the top slice of a purchase price exceeding £1.5m.
The impending hike in tax rates created a rush to buy before last April, which in turn has led to a slowdown in activity in the ensuing months. From this April, buy-to-let landlords will face a new tax regime born of the government’s desire to level the playing field for first-time buyers, many of whom have found themselves in competition with landlords for properties on the first rung of the housing ladder. Whilst some buy-to-let landlords are contemplating placing their portfolios in limited companies to improve their tax position, some will doubtless decide to leave the market altogether. It may be some time before the new dynamics in this market sector become clear.
LACK OF HOUSING STOCK
Although economic uncertainty often has a dampening effect on housing markets around the UK, there are other problems that play a part in keeping prices relatively high. Agents countrywide are reporting a shortage of properties coming onto the market. The government is keen to increase the housing stock, but is showing signs of altering its focus, developing plans in major cities to encourage the building of blocks of flats solely intended for the rental market. However, as it will take considerable time to wean the UK away from home ownership as a financial goal, this move is unlikely in the short term to result in a reduction in demand for homes to buy. Demand is likely to keep prices high, but there will doubtless continue to be regional variations, driven by what is happening in the local economy.
HOW WILL BUYERS RESPOND?
Given that purchasing a property is such a major financial outlay, some buyers are likely to adopt a ‘wait and see’ outlook, preferring to be sure about their continuing employment prospects before committing themselves to a mortgage. By the same token, lenders will want to be sure that borrowers can continue to service their debt should the economy lose ground.
EARLY INDICATIONS
The Halifax House Price Index1 shows that prices fell by almost £2,000 on average in January, as property values dipped for the first time since last summer. This followed a £3,405 rise recorded in December. The average property price as calculated by Halifax now stands at £220,260 representing an increase of £7,783 over the year. Any slight cooling in the market can only be viewed as good news for hardpressed first-time buyers.
1 Halifax House Price Index, Feb 2017