We drew attention last month to the fact that 2012 had started in brisk fashion in certain sectors of the market, but questioned whether this constituted the start of a sustained recovery or whether heightened activity was merely an unseasonal blip.
March has witnessed conflicting research data about price movements and transactional activity, and the announcement of a series of tax reforms which may affect the ongoing momentum of an early market recovery.
The Chancellor’s Budget brought about sweeping and arguably aggressive changes to the rates of Stamp Duty Land Tax on property transactions over £2 million, with the introduction of a new 7% rate, and a higher rate of 15% for “certain non-natural persons” – effectively corporate off-shore structures. These changes came into immediate effect at midnight on 21st March.
Industry research estimates that there are 74,000 homes in the UK worth more than £2 million, of which 75% of related annual transactions take place in London. Garrington has already seen several changes in both vendor and buyer behaviour as a result of the latest rise in the rates of Stamp Duty for properties costing more than £2 million. However, as with the introduction of the 5% rate last year on properties over £1 million, we expect price sensitivity around the tax threshold, but at super prime price levels we do not expect that this will deter private buyers.
In the prime sector of the market industry opinion appears unanimous that the new 15% rate will have a detrimental effect on the market. Recent industry research suggests that 79% of overseas buyers use an offshore corporate structure. In our experience many buyers of prime and super prime homes are attracted to use offshore vehicles, not as a means of avoiding Stamp Duty, but for privacy reasons and tax benefits on inheritance. In the short term this new rate has the potential to be a game changer at certain levels in the market – we have already seen some evidence of super prime prices being adjusted in Central London including at One Hyde Park.
Both the Halifax and Rightmove have released data supporting vibrant market conditions in March. Rightmove confirm the highest spring bounce in eight years on asking prices, suggesting prices have risen 4.9% nationally in the first three months of 2012. London leads with a growth rate of 7.3%, where in the borough of Kensington and Chelsea the average house price is now above £2 million for the first time.
Halifax reported prices rising 2.2% nationally in March. Nationwide, by contrast, reported a fall of 1%, a continuation of the reporting of different price trends by the two lenders seen in February.
Improving Quarterly Performance
At the end of Q1 national house prices remain lower than this time last year, but sentiment and market activity has shown signs of improving during the quarter. The RICS further support this view, confirming that prices have fallen at their lowest rate for 18 months and during March 9% more surveyors confirmed an increase in buyer enquiries.
Any sustained market recovery is dependent on buyer confidence and a return to growth in the UK economy. The Budget was considered by commentators to be “fiscally neutral” because of the need to cut the annual budget deficit. This should ensure that the UK does not slip back into recession, and that a continuing low interest rate environment can be sustained, provided events in Europe do not lead to a further Eurozone crisis.
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