Let’s take a look at what the property market has in store for the New Year…
With a general election coming up in May, government policy is likely to have a significant effect on the housing market over the next 12 months. Here are the key factors that property investors, first-time buyers and home movers would be well advised to keep a close eye on…
It has been at an all-time low of 0.5% since 2009, but even if 2015 is the year that the Bank of England base rate rises any hike is likely to be gradual and have little immediate effect on the housing market.
The likely trigger for any base rate rise is wage growth. In 2013, the Bank stated that it did not intend to raise the base rate at least until the Labour Force Survey headline measure of the unemployment rate had fallen to 7%.
However, it was forced to rethink that policy in November 2014 when the UK’s unemployment rate fell to 7.1%. Now, wage growth is being used to measure how quickly interest rates will rise and the Bank has said that it anticipates a potential increase in its base rate towards the end of this year.
Mansion tax? To be or not to be…
It is too early to start predicting who will be in power after the general election, but if the Labour Party does form a government it is sure to bring in a mansion tax on properties worth more than £2m.
We’ve written about why we don’t think this will work here, but it’s unclear as to exactly what kind of effect it will have on the market. It’s likely that those with expensive properties will do everything they can to try to get them valued at less than £2m. This could mean letting them get a bit rundown or even turning the property into smaller homes.
The UK economy has grown faster than any other developed country since mid-2013, although the recovery may drop off this year due to weakness in the Eurozone. When it comes to the housing market, international investors have played at least part of a role in keeping prices buoyant, with the most popular property in prime areas such as Mayfair, Belgravia or Chelsea. The rouble is now falling rapidly, causing Russians to invest in London’s most sought-after postcodes, so it looks as if global buyers will be keeping the market afloat for some time yet. The UK is known for its competitive tax regime, strong business environment and political stability, an attractive prospect for overseas investors.
Stamp duty changes
In December’s Autumn Statement, Chancellor George Osborne announced that the stamp duty rates would change with immediate effect. Nearly 100% of people benefit from the reforms, although those with properties worth more than £925,000 will be required to pay more – 10% and then 12% on properties over £1.5m. We’ve written about this here. While any changes are welcome, the south east and London are once again paying the price for bad government housing policy. Ironically, the measures could push house prices higher as they won’t cluster so much around the old stamp duty thresholds.
Although we’ll have to wait another few months to see what the outcome of the election is, we don’t believe there will be a substantial drop in prices while property remains a sought-after and scarce asset.