December Market Update

30th November 2016  |  12:00am

December Market Update

2016 has been a year of change for the property market and notable for a few key Government interventions, particularly in respect of the private rental sector.

An additional 3% stamp duty, payable on second home and investment property purchases, was introduced in April and has slowed the number of buy to let investors entering the market. This move was designed to encourage a more level playing field to allow greater number of first time buyers to buy homes and there is some evidence that first time purchase numbers are up although overall sales transaction volumes have been static or falling, particularly in London and the South East.

Reductions in tax relief on wear and tear and, in coming years, on mortgage payments have also targeted landlords.

The announcement in the autumn statement that said that upfront fees to tenants would be banned at some future date is also likely to see costs to landlords increase. This announcement was unexpected and unhelpful in that it proclaimed the outcome before a consultation had taken place. The exact detail is therefore unknown and it is expected to take at least a year to conclude and implement.

Boosts for house building and affordable housing were welcome announcements.

The Government is clearly targeting an increase in owner occupation which has fallen to around 63% of households – down from around 71%. The differential has been largely taken up by the private rental sector which now stands at around 20% of all UK households. The balance in numbers being social housing.

The Government had previously introduced two schemes under the Help 2 Buy moniker and the second of these, aimed at the second hand market through a mortgage guarantee type scheme will end this month. The scheme aimed at helping the new homes market will continue.

Importantly the Government did announce additional expenditure on infrastructure and this is likely to lead to improved transportation links and greater job creation. Unemployment has fallen considerably in recent years and with interest rates at record lows, affordability for those with enough funds for deposits, have become more attractive.

Of course the big news in 2016 was the vote to leave Europe. No-one is really sure of the impact and repercussions of this decision but, in the short term, we are likely to see inflationary pressures brought about by the devaluation of the pound against major currencies such as the dollar and the euro. This may, in turn, see interest rates have to rise in the coming months albeit from a very low starting point.

Movements in interest rates have much less impact on the property market now than in years past as the majority of mortgage holders are on fixed rate schemes and have hedged their positions accordingly.

So what does this mean for the property market in 2017?

Well, crystal ball time but we do not see a significant change from where we are now. 

The simple fact is that demand for housing outstrips supply and this fact alone is likely to ensure that there is no collapse of the market in either volume or price terms although uncertainty around Brexit and affordability are likely to be restraining forces.

Housebuilding, whilst still falling short of required levels is increasing and this is positive news.

Despite the, some would say “attack” on private landlords, there will remain strong demand for rented property both through necessity and choice and, whilst some highly geared landlords may see slightly reduced yields as a reason to exit the market, the majority of the sector is not highly geared and returns are still likely to look attractive against other investments.

Many landlords have also seen significant capital growth during their period of ownership. This is likely to remain subdued in the coming months but will not prove damaging. Keeping property occupied is the key to investment success and the majority of landlords take a pragmatic and sensible view on rental levels in order to maintain income.

The sales market may become slightly more affordable for buyers as prices steady and wages rise. External conditions are unlikely to assist the market but are unlikely to prove damaging either and the current status quo is likely to remain.

People need to live somewhere. Improving employment will mean greater mobility is needed and there is still a pent up demand amongst those who are looking to upsize or downsize.

For anyone thinking of moving and bringing property to the market early in 2017 we advise talking to us now.

The busiest time of the year for internet activity in the property market is the period between Christmas and New Year and so bringing a property to market at this time can help it stand out from the crowd and get “first mover advantage” over those who wait until the New Year and join a greater number of sellers and landlords placing their properties on view.

To conclude, we expect 2017 to have its challenges but the fundamentals of the market remain known and strong. We do not see anything on the horizon that should defer decisions and, as always the team are here to answer your questions and advise.

Finally, we would like to take this opportunity to wish you, your family and friends a very Merry Christmas and a Happy, Healthy and Prosperous New Year.