Blog
2016 – The property year ahead
Wednesday, February 3, 2016
January figures released by the Office for National Statistics showed that UK house prices increased by 7.7% in the year to November 2015 with a figure of 9.8% in the South East where prices benefit from proximity to London, prime commuter catchments and educational options. Average monthly rentals (excluding London) also rose by almost 5% in 2015 accompanied by a raft of changes in legislation for landlords and lettings agents. So what is 2016 likely to hold for the property market, for residential sales and lettings? Without consulting the crystal ball, here are a few predictions for the year ahead.
Until recently we might have expected a rate increase in early 2016. However, at the end of January, Mark Carney, Governor of the Bank of England, ruled out any imminent increase with global economic turmoil and weaker UK growth postponing the need for tighter monetary policy. Rate rises in 2016 now seem a remote prospect, with many economists predicting no change in interest rates until 2017; good news for mortgage holders.
Competition between mortgage lenders is fierce with some outstanding deals available for first time buyers, re-mortgages and for buy-to-let investors. New customers can really gain by shopping around or seeking advice from an independent adviser to find the best product for their specific needs.
There’s every reason to predict that UK house prices will continue rising in 2016. Demand from buyers remains strong - there just isn’t enough supply to satisfy demand - and new build numbers are still way below what is required. So the question is by how much will they rise? This will naturally vary across the market, by property type and by location.
At the lower end of the market the Government’s Help to Buy schemes, including the Help to Buy ISAs launched in December 2015, will keep things moving but buyers will need to act quickly. With a squeeze on supply comes increased competition between first time buyers and investors in particular. The 3% surcharge on each stamp duty band where a property is being purchased as a buy-to-let investment or a second home applies in April 2016 and there’s likely to be a surge of interest from investors looking to purchase investment properties ahead of the deadline. For first time buyers competing with investors it’s key to organise your finances before you start looking so that you are able to compete.
At the upper end, house prices are rising but more slowly. Last year in Gerrards Cross and Beaconsfield, most sales were of detached properties with an average sold price of just over £1m and £1.3m respectively (Land Registry figures supplied by Rightmove). This represents an increase of just 5% and whilst The Chilterns area attracts those moving out from London with its excellent commuter links, the 2015 Stamp Duty Land Tax changes were unwelcome news for those buying properties over £937,500 and will continue to affect buying decisions in 2016.
Across the UK there is still a shortage of new builds. A new system with “automatic permission” for developers to build on suitable brownfield sites and financial incentives to developers to build 200,000 starter homes for first-time buyers have already helped boost the house-building sector, with planning permissions and housing starts now at a seven-year high, according to Housing Minister, Brandon Lewis.
In the lettings market, industry experts foresee rental prices increasing in the UK by at least 5% in 2016 depending on area and property type. Average rental values in Bucks, Berks and Middlesex are considerably higher than the national average and, with demand increasing, will inevitably rise. This may be kept somewhat in check by the absence of a mortgage rate rise and associated costs for landlords.
Lettings legislation still dominates the headlines in 2016 with the Right to Rent policy in force from February 1st. Any landlords housing tenants that do not supply valid documents to meet the requirements of the Immigration Act 2014, face fines of up to £3,000 per tenant. From 1st April tenants can request consent from their landlords to carry out energy efficiency improvements to privately rented properties. The landlord may not unreasonably refuse consent and from April 2018 there will also be a requirement for private rental properties to have a minimum rating of “E” on an Energy Performance Certificate (EPC).
The increasing burden of legislation, health and safety requirements and the additional time and money these require are making many landlords think twice about their status. It’s no longer as simple as finding tenants, signing contracts and handing over the keys. More than ever, it is vital for landlords to understand the regulations and ensure that they are adhering to the law or enlist the assistance of a lettings agent to keep everything on track.
A major change lies in the new buy-to-let tax restrictions phasing in from 2017 which may really impact on landlords’ tax bills. Mortgage interest tax relief will ultimately be limited to 20% for buy-to-let landlords and this, coupled with the increased stamp duty surcharge from April 2016, delivers a serious blow to the bottom line. The surcharge means that from 1st April for properties worth £125,000 - £250,000 the stamp duty for buy-to-let landlords will be 5%, and for properties worth £250,000 - £925,000 stamp duty becomes 8%. It’s not all bad news though; as a long term investment, buy-to-let can still be very profitable with house prices rising, strong demand for rental properties and low buy-to-let mortgage rates available.
Also from April 2016 the ‘wear and tear allowance’ for landlords will be changed to a new system. Previously, they were able to claim wear and tear allowance as a matter of course. The new allowance only enables landlords to claim tax relief for costs actually incurred in replacing furnishings in the property. The good news is that this is available to all landlords, whether letting a furnished or unfurnished property.
In spite of all the changes, the South East is still an attractive option for property investors particularly if they seek expert advice on which locations and property type to invest in. Landlords can be fairly confident that 2016 will be a profitable one although it will require more time and effort to remain on the right side of the law and the taxman!
If you’re planning to sell or let your property in 2016, it’s important to get an accurate, current market appraisal of your property to enable you to make informed decisions. Talk to your local property expert to find out more about your local property market or read our selling and letting guides.
