Rate of house price growth in UK starts to plateau

Latest index data suggests that the rate of house price growth in key cities in the UK is starting to plateau after a strong first half of the year. London in particular is likely to see slower growth ahead.

Month on month the Hometrack Cities Index recorded growth of 6.9% in June and year on year growth is running at 10.2%, the same level as the previous month.

Market attractions

The index report suggests that double digit year on year growth has been sustained by the surge of investor demand ahead of the stamp duty change in April. Low mortgage rates and improving economic conditions have continued to attract households into the market against a backdrop of dwindling supply with the net result being continued upward pressure on prices.

In June, Bristol remained the fastest growing city with year on year price growth of 14.7% taking the average price to £253,400. London followed close behind with annual growth of 13.7% to £476,800 and then Cambridge up 11.5% to £411,800.

The report points out that any impact from the decision by the UK to leave the European Union will not be reflected in the index for two to three months.

“That said, we have reported signs of slowing growth in some cities, particularly in southern England where affordability levels are close to record highs. The slowdown might have been more apparent by now had the stamp duty change not been introduced,” it says.

Supply and demand

A new analysis looking at listings also shows that for selected cities new supply has grown faster in the last three months than the average increase in supply seen over the last 12 months. For all cities in England and Wales excluding London new supply has grown 10% faster than the 12 month average, this rises to over 15% in London.

“This analysis shows how recent sales momentum in regional cities, and higher house price growth, appears to have held up over the referendum period. In contrast, the headwinds facing the London market ahead of the vote have resulted in more supply and relatively fewer sales pointing to slower house price growth in the months ahead,” the report says.

Hometrack explains that this is something that is clearly evident at a more granular level across London’s localised markets where the highest value markets in central London are registering low single digit growth. In lower value, outer areas of London growth is still 15% to 20% per annum although showing clear signs of losing momentum.

“While this listings analysis provides a snapshot of the last quarter, the reality is that it is still very early days to assess the true impact of the EU referendum vote on activity and house prices. Our view remains that sales volumes are likely to slow and price growth will moderate over the second half of the year,” the report adds.

“The severity of a slowdown will depend upon the response of consumers and businesses to the uncertainty created by the decision to leave the EU and the impact this has on the economy. The early market activity data confirms our view that London will bear the brunt of any slowdown,” it concludes.

Source: Property Wire

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Three in 10 property purchases fall through

New research from Which? Mortgage Advisers reveals that three in ten (28%) homebuyers have had a house purchase fall through after their offer was accepted, and on average homebuyers were left nearly £3,000 out of pocket as a result.

The survey of 2,000 homebuyers – who bought their home in the previous two years – found that it takes over 4.5 months on average, from starting a property search to having an offer accepted. However, 28% of purchases fell through after that point.

The main reasons for a property purchase falling through were:

  •     The seller decided not to sell their home after all (27%)
  •     The buyer pulled out, as their own property sale had fallen through (21%)
  •     The buyer found somewhere else to buy (21%)
  •     The buyer was ‘gazumped’ (21%)

Of those who had lost money and knew how much they were out of pocket, the average loss was £2,899. This included conveyancing, survey, mortgage valuation or brokerage fees paid and not recovered.

Many homebuyers experience failed transactions due to problems in the ‘property chain’ – the line of buyers and sellers linked together because each is selling and buying a property from another.

For more advice on managing a property chain and keeping things moving, visit Which

Buy-to-let lending critera – and the Brexit

Brexit has sent shock waves throughout British industry, but even before Britain voted to leave the EU, tougher buy-to-let mortgage lending criteria had been announced.

Anne Wilson, senior tax manager of the tax department at Pierce Chartered Accountants, pointed out that that the rules will require lenders to carry out stricter stress tests on prospective borrowers or those wishing to re-mortgage to ensure that they have sufficient capital to cover repayments if interest rates increase to 5.5%.

In the future, there will also be changes to the way that tax relief for interest payments on the purchase of residential lettings will be given in the tax computation. This will affect individuals, partnerships and limited liability partnerships which let out residential properties. At present there are no proposals for this restriction to apply to furnished holiday lettings nor to companies with residential lettings.

Wilson explained that currently, rental profits are reduced by any loan interest paid and therefore a top rate taxpayer could receive tax relief at 45% on their finance costs. However, under new legislation the loan finance costs will be relieved by way of a reduction of the tax liability, rather than a reduction in the rental profits, and is restricted to relief at the basic rate of income tax.

Those with substantial rents and interest costs, thus with low net profits, who are currently basic rate taxpayers, could see their income pushed into the higher rate band as the interest costs will be added back to the rental income.

For example, an individual whose only income is rents of £50,000 and interest costs of £20,000 would have net income of £30,000, and so within the basic rate tax band. Under the new rules the same individual would be a higher rate taxpayer because their income would be £50,000 with a deduction for interest relief given at the basic rate only.

As a result of the way in which the net rent will be calculated those whose income is close to the £50,000 threshold for the withdrawal of child benefit, and those with income near £100,000 for the withdrawal of personal allowance could be adversely affected even though their income has not actually increased.

To ‘soften the blow’ these measures will be phased in gradually over four years and will apply to 25% of the interest costs in the 2017/2018 tax year, 50% in the 2018/2019 tax year and 75% in the 2019/2020 tax year before being implemented in full in the year to April 2021.

‘If you have a relatively modest portfolio of properties which are let out as residential lettings, it maybe that you will simply have to accept that your income tax liability in respect of those lettings may increase in future as taking any steps to mitigate the interest restriction could be costly. Sharing income with family members or family trusts may be worth considering but capital gains tax issues will need to be addressed,’ she explained.

She added that those with a substantial portfolio of residential lets may wish to consider incorporating their business, however, there could be a substantial capital gains tax liability if they incorporate their property portfolio because moving the properties into a company could trigger capital gains tax.

‘However, if you have a large property portfolio that you devote a substantial amount of time to managing, it may be possible to claim capital gains tax roll-over relief on incorporation of a business to mitigate the capital gains tax liability arising. If you have no gains in your property portfolio it may be possible to transfer the properties into a company without triggering capital gains tax,’ she explained.

But there is likely to be a substantial stamp duty liability on the property transfers to a company, unless specific reliefs are available, and she advises that incorporation of a property business should not be undertaken without specialist advice.

Source: Property Wire

Landlords in UK urged to stay calm in face of EU exit vote

Residential landlords in the UK are being urged not to read too much into the decision by the country to leave the European Union, having gone through a turbulent period recently.

Buy-to-let landlords are now paying a 3% surcharge in stamp duty on each additional property they buy to add to their portfolios and are also facing further tax changes. Now there are concerns that Brexit could affect their businesses.

However, according to Richard Lambert, chief executive officer of the National Landlords Association (NLA), while leaving the EU is completely unknown territory, jumping to conclusions isn’t going to help anyone.

‘We welcome governor Mark Carney’s steadying words and his reassurance that the Bank of England and the Treasury have extensive contingency plans in place to ensure the country’s financial stability,’ said Lambert.

‘Any knee-jerk reaction will have a real impact on our members’ mortgages, tenants’ rents and overall confidence in the market. So we would urge the policy as regards to interest rates should be, to continue the Prime Minister’s analogy, one of steady as she goes,’ he added.

In a joint statement, David Cox, managing director of Association of Residential Letting Agents (ARLA) and Mark Hayward, managing director of National Association of Estate Agents (NAEA), said that in the short term the market can weather the uncertainty.

‘The outcome of the EU referendum will create a period of uncertainty among home owners, buyers, investors, landlords and developers. We can expect international investors to look a lot harder at the UK as a market and this will have a consequential impact upon the house building sector as investment may be stalled,’ the statement said.

‘In the short term we believe that both prices, and rents, will remain stable, but we cannot be certain about the next quarter as political instability, and market unrest, could lead through into prices in the housing market,’ it pointed out.

‘We believe that the UK housing market is resilient, as is the supply chain that drives it.  But as we indicated in our Brexit report last month, the bigger impact may well be in the skills necessary to drive UK housing development, and this is now a major concern for UK buyers and renters,’ it added.

Source: Property Wire