The arrival of spring has encouraged more sellers to come to the market, but the overall stock of property is still insufficient to meet buyer demand. George Osborne delivered an optimistic budget in March, with additional support for the housing market, but failed to reduce the current rates of Stamp Duty on property purchases despite rising property values. The Budget contained an unexpected sting in the tail for corporate and “non-natural” purchasers of residential properties.
Key Budget points
- From the 20th of March 2014 the starting level for the penal 15% rate of Stamp Duty Land Tax on purchases of homes costing more than £2 million by “non-natural” persons has been reduced to £500,000. Purchases made before this date, but not yet completed will not be affected
- Help to Buy scheme extended until 2020
- £6 billion additional funding to support the construction of 120,000 homes
- New “garden city” development of up to 15,000 new homes in Ebbsfleet, Kent
Conflicting market indices
Rightmove reported a 1.6% increase in average asking prices of property coming to the market (annual 6.8%), taking the figure to a record high of £255,962. Of note is the fact that the increase for London was less at 1.5%. Rightmove reports mid-monthly, whereas Nationwide and Halifax both use figures for the calendar month, and reported signs of moderation in house price growth. Nationwide recorded a monthly increase of 0.4% whilst Halifax reported a fall of 1.1%. Both agree however that the recovery in the housing market is firmly established, and that the annual change in house prices is some 9%.
Inevitably, recent house price growth and a shortage of stock has raised concerns in the Press and other quarters about the sustainability of such rapid price rises, especially in London, which has seen an 18% increase in values over the last 12 months according to Nationwide. Amongst those commenting was the Chancellor, who recently told the Treasury Select Committee that the housing market needed to be watched closely, and that it was the responsibility of the Bank of England’s Financial Policy Committee to tackle risky mortgage lending and keep the market under control. The Bank has noted a “significant increase” in the number of mortgage approvals for borrowers with deposits of less than 25%, and in the willingness of institutions to lend at loan-to-value ratios above 90%. Additional controls on mortgage lending would not therefore come as a surprise, but a tightening of monetary policy is less likely because of the wider repercussions.
However, the ability of the Bank to influence market behaviour is limited because of the influence of cash and international buyers. This group of buyers remains particularly active in the market, with combined data from HMRC and The Council of Mortgage Lenders revealing that over 35% of the transactions in Q4 last year were accounted for by cash buyers, compared to less than 25% in the same period in 2007 prior to the recession.
Reports from our offices across the UK show a mixed picture of activity, with demand in London and the South continuing to be very strong, but far more polarised in the North of the country. For example, the Harrogate market remains brisk, and newly available properties in prime Cheshire locations are gaining early interest from buyers, although prices remain below their previous peak. Prices in London continue to rise sharply, but this has reduced investment yields as rental levels have remained relatively static. We expect prices to continue to rise as more schemes are realised and Crossrail is completed.
Buyers priced out of the London market are increasingly looking at buying in the surrounding Home Counties, with demand being driven by both London based clients and expats. The recent announcement of the extension of Crossrail to Reading is expected to lead to demand for private and investment properties in Berkshire, which could take the increase in values this year to well above 10%.
The market remains supported by the fundamentals of stock shortage and a healthy economic and monetary background. The Office for Budget Responsibility has increased its forecasts for GNP to 2.7% in 2014 and 2.3% in 2015. Interest rates remain low, with the financial market expecting the base rate to remain at 0.5% until Q2 2015, before rising slowly to 2.0% by Q1 2017. Against this background we expect the market as a whole to stay firm, but with regional variations.
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