What a year! Let's look back at 2016
There’s no doubt that 2016 has been an eventful year for the property market. A number of predictions have come to fruition however, there were a number of surprise announcements along the way which nobody expected 12 months ago.
With a new government in tow, an exit from the European Union and a higher demand for property than ever, it’s important to look at the fundamental changes the market has to continue to adapt to, and how this could affect anyone considering a property purchase in the near future.
The changes to land tax were a shock to many when it was first announced by the Chancellor in 2015’s Autumn Statement. However, once the changes came into place and the full details were digested, it’s clear to see this has not deterred anyone looking at buying a second property.
The changes took place on 1st April 2016 and saw buy to let investors and those purchasing second homes pay an extra 3% surcharge on properties worth over £40,000, in addition to the current SDLT rates. Despite the increase in price for investors, interest rates have remained historically low meaning that landlords can continue to benefit from strong returns on their investments. Not only this, but the stamp duty surcharge can be offset by capital growth over a relatively short period of time, so buy to let investors can be assured that a nominal tax increase won’t have too much of a long term impact.
It’s also worth noting how stamp duty will affect different areas of the UK – it’s no great secret that the London property market has been sinking for some time. With house prices hitting such dizzy heights, it has become almost impossible for investors to buy here and turn a profit. For example, one property in London worth £500,000 would equate to purchasing around five £100,000 properties in a northern city such as Manchester or Liverpool; this would be a much smarter option as not only would the returns from five properties be higher than the income from just one, you’ll also have five properties benefiting from capital growth. This is in addition to attracting much lower stamp duty charges too.
While we knew the referendum was coming, the result back in June was fairly unexpected by the majority of the property industry. Leaving the European Union resulted in a government overhaul and a level of uncertainty within the economy. Now, 6 months on, the dust has settled and, once again, the impact isn’t quite as detrimental as the media may have us believe.
Enquiries for both buy to let and Spanish property at Sequre actually increased following on from the referendum result, suggesting that Brexit isn’t having an impact on the people looking to buy in the UK or abroad. Property prices are rising at a healthy rate and there certainly doesn’t seem to be any signs of a declining market as many anticipated.
It’s been apparent for some time that the housing supply in the UK isn’t quite meeting demand. Not only are first time buyers keen to get onto the property ladder, many individuals are wanting to climb up it. Those who aren’t in a position to buy are relying heavily on the rental sector, which is expanding at a fast rate with more than seven tenants chasing every rental property on the market. Competition is fierce and investors are keen to snap up and take advantage of a profitable market.
Announced in the Autumn Statement 2016, the government will be putting a total of £3.7bn towards new housing across the UK with the aim of constructing around 140,000 new homes by 2021. It’s promising that the government has recognised the distinctive need for property in the UK and with so many new developments under construction, particularly around the North West, it’s clear that developers are attempting to rectify the shortage. This is a huge step in the right direction.
So what has really changed?
For buy to let investors, there’s no doubt that there has been some adjustments, but looking at the market as a whole and those looking to invest long term, property is still by far the best investment type there is. Looking at recent reports from November, it is clear that London and other areas of the south are, as predicted, suffering as a result of accelerating prices which are now beginning to stagnate. Hometrack recently recorded the average house price in the capital at nearly half a million pounds; completely unsustainable in today’s market.
Whereas the same report highlighted cities such as Leeds and Liverpool seeing a much healthier house price increase of 6.2% and 5.6% respectively. Northern Powerhouse cities appear to be making their mark as strong, robust areas with continual steady growth.
At Sequre, we’re still seeing a high number of investors, both new and experienced, purchasing property for investment. By buying sensibly in the right areas and at the right price, investors can still see huge returns, and despite many economic changes, this looks set to continue into 2017.