Property Newsletter May 2016
Welcome to this month’s property newsletter from Source Investments which reviews current information relevant to both existing and prospective buy to let investors.
According to the Halifax monthly house price index, house prices have risen at their slowest rate since November with growth at 9.2 per cent in April compared with the same time in 2015. Growth dipped in the three months to April from an annual rate of 10.1 per cent in March.
This follows the rush by buyers in February and March to beat the 3 per cent stamp duty surcharge on second homes and buy-to-let investment properties which came into force on 1st April which is believed to have put up prices.
There were 161,990 property sales of £40,000 or more in March which was a 77% rise compared to March 2015 and the highest number of sales since 2007 according to the Revenue and Customs.
The average house price fell to £212,321 in April compared with March. In the three months to the end of April prices were 1.5 per cent higher than the previous three months which is also the smallest quarterly rise since November.
Mark Posniak (MD of Dragonfly Property Finance) – “After the stimulus provided by the stamp duty deadline for buy-to-let and second homes, house prices were almost certain to come off the boil in April”.
Jonathan Hopper (MD of Garrington Property Finders) – The frothy exuberance of March now seems a distant memory. Double digit annual price rises are unlikely to return any time soon”.
According to the Halifax survey confidence in the UK housing market is now at its lowest level for 12 months. It appears that people are putting off selling their homes to see what happens to the property market and because of uncertainty pending the build up to the EU referendum on 23rd June.
Despite the slowdown, house prices are 5.63 times average earnings and figures from the National House Building Council showed that the number of homes registered in the first three months of the year are down by 9 per cent (15 per cent in London). The market principles of supply and demand plus the continuing period of record low interest rates and rising employment suggest that house price growth may not stay subdued for long.
ONS Revise Property Data
The Office for National Statistics (ONS) has wiped thousands of pounds off the value of UK homes after carrying out a revision of its data. At first glance it appears that the ONS massively overestimated the rate of house-price growth, but the government department rejects this suggestion, saying it has merely updated its house price index.
As a result of the revisions London homeowners are likely to be surprised to discover that their property has typically plummeted in value by £27,000 in just one month.
The original ONS data, issued last month, prompted some national newspapers to report that property prices in London were increasing by almost £500 a day. It now appears this was not the case.
The revelation that the ONS has dramatically revised its numbers is discreetly tucked away in the department’s latest monthly house price index. Last month the ONS declared that the average London house price hit a record high of £551,000 in January. That was £15,000 up on December’s figure of £536,000. But the latest figures state that the average London house price in February was £524,000. This figure is £12,000 down on December 2015 and £27,000 lower than the figure declared for January.
Property Mortgage Lending
The latest Mortgage Monitor from e.surv, showed that home lending in the first quarter of 2016 was its strongest since 2007 with an average monthly figure of 71,710 house purchase loans being granted between January and March. This is the highest for nine years and compares with the total average of 116,898 home loans per month being granted in the first quarter of 2007.
Most analysts agree that this unusually high activity has been powered by a rush from buy-to-let landlords racing to beat April’s stamp duty changes. However, March saw a monthly dip in lending as some landlords were too late to beat the surcharge coming into effect on the 1st April. The month saw 67,173 overall house purchase approvals (seasonally adjusted) – 9.1% lower than the 73,871 seen in February. Despite this, March marked a return to normal activity with all borrowers, including first-time buyers, benefiting from a healthy range of mortgage products.
To date a total of 210,468 house purchase approvals have been granted this year, 13.5% higher than 185,356 in the first three months of 2015. House purchase lending has also risen annually – up 8.2% from 62,095 loans granted in March 2015.
Residential Property Rents expected to rise
Almost all landlords are considering increasing rents to pay for the higher taxes they now face, according to a survey by the Residential Landlords Association (RLA), which found that 84% of private sector landlords are likely to consider increasing rents following the Chancellor’s recent tax assault on the buy to let sector.
The survey also found that 78% of landlords felt that the changes would deter them from investing in more properties to rent with half considering getting rid of properties. This is in the face of rising demand for rented housing with Savills predicting that 1m new homes to rent will be needed by 2021.
In a statement the RLA said that whilst fewer buy-to-lets being bought might meet the Chancellor’s desire to free up some properties for homeowners, for the increasing number of people who cannot afford to buy or who prefer not to, the tax changes will make it more difficult and more expensive for them to access housing.
The RLA is calling on the Government to exempt from the 3% stamp duty levy all rental property making a net increase in the supply of new housing. 39% of landlords reported that they would be more likely to invest in new build rental housing if this was exempt from the levy.
Buy-to-let pensioners “depend” on rental income
72% of the 1000 pensioners with an investment property polled by Responsible Equity Release said they would struggle to make ends meet if they didn’t have the income from their buy-to-let.
Of those over 81% aged over 65 admitted that their properties provide a vital boost to their retirement income, especially with low interest rates adversely impacting their savings.
More than 92% of those polled said they are worried about the changes to mortgage interest tax relief and the impact on the profit they make from their investment property.
Also according to the poll, the buy-to-let tax changes that are coming into force may result in many pensioner landlords (41% of those polled) selling up.
Talking about the poll, Steve Wilkie, MD at Responsible Equity Release, said: “For many pensioners, having a buy-to-let property has been a life saver in this low interest environment. While their savings have languished, earning very little interest, and pension income has been hit hard by falling share prices, property income has remained strong. Without the income boost from their buy-to-let, many would really be struggling to make ends meet. But the Chancellor has yet again ignored UK’s retirees when he announced changes to the way buy-to-let would be taxed.”
Treasury analysing feedback on consultation about 3% Stamp Duty Surcharge
The Treasury is now “analysing the feedback” it received during the 6-week consultation period on the 3% surcharge on Stamp Duty Land Tax (SDLT) proposals for second properties.
Amongst the opinions put forward was a strong plea from The Council of Mortgage Lenders (CML) to reform the SDLT plans so as to mitigate what it sees as the potentially negative impacts on the housing market as a whole.
The view from CML is that the forthcoming adverse tax changes for private landlords and other interventions in the buy-to-let market are enough on their own to bring about the government’s preference for a slowdown in BTL activity.
Statement from CML
‘There is a risk of overkill in dampening investor sentiment to the extent that the flow of available private rented property could be disrupted, without any necessarily corresponding increase in the ability of households to become home-owners.
‘In addition, with around a fifth of households currently renting in the private sector, there is the perverse risk that the SDLT increase could cause landlords to charge higher rents, and so actually make it harder for tenants who want to buy to save the deposit needed to do so.’
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