Certainly the agents I have spoken to say this is not a typical ‘December market’ and I’m guessing that since the Autumn Statement was made last month, it is likely to be even more atypical.
It will not have escaped your notice that the Chancellor’s announcement to increase stamp duty by 3% for those purchasing second homes and buy-to-let properties from next April, has had a considerable impact. One agent I spoke to said landlord interest spiked almost as soon as Osborne finished speaking and properties which had been, shall we say, short of viewings over the past few weeks were suddenly back on the interest list.
This so-called ‘rush to let’ that many have predicted appears to be in full effect and I’m of the opinion that the British psyche – to save tax at all costs – will be fuelling this market up until the point where a pre-31st March completion simply isn’t possible.
My colleague, Harpal Singh, recently warned of the potential for ‘conveyancing market mayhem’ over the next four months for a variety of reasons not least the fact conveyancers will be under extreme pressure from landlords to complete before the stamp duty increase kicks in. Four months is an incredibly short timescale, and you must also add in the fact that the Easter holidays fall at the same time – traditionally a very busy period in the housing market anyway as purchasers want to get into their new homes before the holiday.
It could all make for a very uncomfortable period for conveyancers. However, what about agents who will be in the middle of these transactions? Well, I would certainly expect them to be busy with landlord enquiries so it will be important to be aware of the other issues landlords will also be facing.
There has been much scrutiny on the Government’s July announcement of the cut to tax relief on interest payments from the higher to a basic rate which will take place between 2017 and 2020. Coupled with the post-April stamp duty changes, the changes to the wear and tear allowance, the fact taxation will be judged on rental income rather than pre-tax profit, and you can see there are any number of considerations for landlords to be making.
It’s perhaps why there have been numerous warnings issued about ‘jumping into’ buy-to-let without looking at the true costs and consequences. Should, for example, the client be utilising a limited company structure to purchase, rather than buying as an individual? The mortgage choice is much thinner for this option but overall – especially with the changes to tax relief – it may be the wise choice, especially if they are looking to expand their portfolio relatively quickly.
The other risk of course that agents may well have to manage is the potential for some serious, localised overheating of the market if landlords/potential investors decide to go all out to secure a property, rather than pay the extra stamp duty. Ironically, if this does occur and presuming a quieter period post-April, it may well be that prices fall back to a range where the increased stamp duty does not mean it is completely out of the question for clients. However, I would expect to see upward pressure on prices particularly in those very popular rental areas.
We would certainly however expect the market for investors to quieten down from quarter two 2016. Recent history has taught us with these short-term interventions – remember the stamp duty holiday? – that they do tend to see increased activity up to the point where the measure is either taken away or introduced, and then we see a fall in activity.
The message therefore to agents, particularly those who have a sizeable array of investor clients, may well be that they have to manage their entire 2016 business levels and ambitions based around the fact this is once again likely to be a year of two halves, punctuated by a sizeable event. In many areas of the UK, there will be no such thing as a quiet start to the year.
