Without a doubt the property market has been cooling rapidly since August 2014, and there are a number of reasons for that:
- The MMR rules in place since April 2014 have affected every mortgage applicant and lending criteria has become very tight as a result
- Stamp duty changes
- A glut of new homes built for the luxury end of the market
- Reduced interest from foreign buyers for a variety of reasons
- The impending election
- The double threats of both Mansion tax and possible interest rises on the horizon
Despite the fact that the overall amount of mortgage lending was very high in 2014, the number of approvals was markedly down. All buyers have been affected, including those dealing with private banks.
Prices - The Election Effect
The market is cooling, but that doesn't mean to say that property prices haven't risen in 2014. In fact, they were very strong up to August 2014, with an increase of anything between 7.2% and 10.4%, depending upon which survey one reads, i.e. Nationwide or ONS. Prices will continue to rise in 2015 but are unlikely to be as strong as the preceding year. The forthcoming election is probably the most important factor; purchasers and sellers are jittery about the outcome of the election, and the prospect of the mansion tax is concerning the top end of the market.
Effects of New Stamp Duty Scheme
First-time effects of the recently revamped and graduated stamp duty scheme, but there are signs that the new scheme has benefited the middle end of the property market, i.e. those properties between £400,000 and £850,000. The RICS believes that there will be an increase of 5% in sales within this middle price band. In real terms these changes will have reduced stamp duty for 98% of buyers. However, that does mean that anybody buying properties over £937,000 will face an increase in stamp duty, and this will immediately affect the upper end of the market.
Stamp duty will be liable as follows:
- 5% on properties between £255,001 and £925,000
- 10% on properties between £925,001 and £1,500,000
- 12% over £1,500,000
- Properties of £1 million will see an increase of £3,750
- Properties of £2 million will see an increase £53,750
- Properties of £3 million will see an increase £163,750
This has reversed the effects of the old SDD slab system that disproportionately affected those at the lower end of the market, i.e. first time buyers who need the most help of all.
The new graduated system means that there are fewer big leaps in duty payable and fewer clusters of properties below the respective thresholds.
Stamp duty is still far too expensive; the thresholds are still not in line with house price inflation. In real terms, the thresholds should actually be very approximately equivalent to £800,000 and £1,600,000 respectively.
Effects of International Finance on the London Market
There would appear to be a glut of housing at the top end of the London market including new builds, and the foreign investors on whom this end of the market relies have seemingly disappeared.The economic situation in the Eurozone means that for European investors, the London market will now be more expensive for them. The euro has fallen hard, and that situation is likely to continue.
Russian investors, who traditionally represent 20% of the foreign investor market, have practically vanished. The Russian government, because of the poor situation there, is offering attractive inducements to keep the money in Russia and the West's Ukranian sanctions have also affected the worth of these investors.
Effects on Older Homeowners
There is great prejudice against older homeowners; it is strongly suspected that the MMR is being either too strictly applied or erroneously applied, and older people are experiencing real difficulties when trying to passport their existing or even reduced mortgages.
The financial institutions have to realise that older people are working longer, their pensions (through no fault of their own) are paying very little, and their savings are attracting record low interest rates. Many will want to downsize but will still need a relatively small mortgage. However, the banks apply clear age limits on their loans.
As a result, 2014 saw record levels of equity release; some £1.4 billion was released into this market to older borrowers. They need the money to downsize, supplement pensions, and to assist children and grandchildren with home ownership.
This is a very expensive way to borrow. Home reversion (a variation on equity release) is even more expensive. Within these schemes the homeowner surrenders a percentage of their home in return, whilst still retaining the right to live in their home and, in a market where prices look as if they are continuing to increase, these type of schemes are likely to be the most expensive of all.
Effects of Online Research & Technology
There is a wealth of information on the web about the property market and individual properties. There are more property portals, online estate agents and information about historic property prices, which are assisting buyers and sellers alike. The biggest users of this information would appear to be 'the Silver Surfer' and the older property owner.
If you are considering a purchase or sale, or are affected by any of the issues referred to in this article, please contact our specialist property lawyers on 0207 387 2032 or complete our online enquiry form here.
