The arrival of summer, with longer days and warm weather, has not yet brought about the traditional ‘summer bounce’ some commentators had been predicting. Whilst the market has remained generally favourable over the last month, it does however remain incredibly polarised and therefore difficult to summarise succinctly.
In contrast with the pattern seen in recent months, Nationwide and Halifax have reported conflicting views on both the monthly price movements and the general health of the market. According to Nationwide, prices fell by 0.2% in June, which was triggered by a slowdown in the annual rate of growth in 11 out of 13 areas being reported on. In stark contrast, Halifax have reported a far more bullish picture of the UK market, recording a notable 1.7% jump in values during June, taking the rate of annual growth to 9.6%.
With such differing reports it is difficult for home movers to draw sensible conclusions on which to base their plans. Garrington is seeing first hand in the market that there are currently more buyers than sellers and accordingly this is driving prices up in some locations. However, buyers remain price sensitive and in some cases transaction values have fallen to reflect this sensitivity.
Ready, willing and able sellers
The lack of supply of property in the residential sales market is not a new phenomenon, but it has undoubtedly become an acute issue over recent months.
According to the NAEA the number of registered buyers looking for property has increased 11% month on month, whilst at the same time the volume of sellers entering the market has failed to keep apace and only risen by 6%. Rightmove suggest that the volume of new property on the market has actually contracted by 8.5% compared to a year ago.
This trend appears to be long term. When comparing the state of the market exactly 10 years ago, broadly speaking the same volume of buyers were active, but the volume of homes for sale in the market was 43% higher than it is today. The Royal Institute of Chartered Surveyors also say that the stock of property for sale is at its lowest level since it started collecting data in 1978.
This ongoing issue is now starting to bite into the vibrancy of the market. Whilst demand exceeding supply will usually result in an increase in prices, the property market is hitting an ‘affordability glass ceiling’ in many locations, which is restricting the number of completed sale transactions. Less stock entering the market and therefore limited choice is also deterring a number of vendors from placing their own homes for sale, who are not prepared to sell without the certainty of an onward purchase.
Home and away
Despite the above market led issues, the wider economy still looks supportive for the domestic property market with economic growth forecasted to be 2.3% in 2016, higher levels of employment, increasing real earnings growth and exceptionally low mortgage rates.
Further afield, international events such as the ongoing Greek debt crisis and Chinese stock market crash should not be ignored as the consequences could make it harder for the UK to meet growth and debt reduction targets. These events could also further push back any decision by The Bank of England’s to raise interest rates.
The Chancellor made a series of announcements in his Summer Budget which affect the property market and may trigger some unintended consequences.
An increase of the Inheritance Tax threshold to £1million will take effect from 2017. This change will be welcome news for families and homeowners and may remove the need for some families to have to sell a property in order to meet their inheritance tax liabilities. This again could further constrain supply into the market.
The Chancellor also announced that the tax relief on buy-to-let mortgage interest would be reduced over a four year period to the basic rate of tax. For existing landlords who have purchased using a mortgage, this will lower net income. Such changes may now encourage some landlords to hold property within a company structure – particularly given corporation tax rates are due to fall in time to 18%. We may also see rents increasing as a consequence of this change as landlords seek to offset their loss of tax relief.
The abolishment of permanent Non-Dom tax status was also announced in the Budget. This sweeping measure has brought a mixed response in the market with some commentators feeling that it is not enough to deter buyers and it is a fair and responsible reform. In the short term it is likely to have a further ‘shock effect’ on the prime central London market, as ultra-high net worth buyers seek advice and reconsider their wealth strategies.
Overall as we head into the summer holiday season the market remains positive but increasingly complex in nature. Hesitation caused by volatility and reforms will undoubtedly create opportunity over the summer for some buyers, but a prerequisite for success in the current market will be to have the very latest information and accurate guidance from experienced advisors.