Following an optimistic outlook for 2016, estate agent Romans looks back at how the housing industry fared over this year and reveals its predictions for the 2017 property market.
All signs pointed at a buoyant market at the start of this year, but little did the sector know, the next 12 months would be rockier than anticipated. From Brexit to tax changes, Romans runs through what affected the property market this year:
Stamp Duty surcharge
Created to deter property investors, the 3% Stamp Duty surcharge for additional properties was supposed to help stabilise or reduce costs on smaller homes across the country and, in doing so, help to encourage first time buyers onto the property ladder, as there would be less competition from landlords.
In the run-up to the introduction of the surcharge in April, Romans recorded a sharp rise in the amount of investors registering and purchasing across its local area (the Home Counties). As a consequence, more properties available to let flooded the market in the early part of the year, which has now evened out.
The Sales Director at Romans, Antony Gibson, explains: “We have seen the proportion of first time buyers increasing, and the National Association of Estate Agents (NAEA) reported that in October, a third of all house sales were to first time buyers. I don’t think this is solely down to the surcharge though, as there have been other incentives put in place by the Government, like Help to Buy and New Buy, which are making it easier.”
Michael Cook, the Lettings Director at Romans, adds: “In the first quarter of the year, our number of sales to investors spiked, at close to 30%, and dropped considerably in quarter two, as expected. Encouragingly, we saw this recover again in the third quarter, up to 16%, which was far closer to the 2015 average of 21%. I believe this renewed interest is down to a lack of alternative investment avenues, coupled with strong medium to long-term forecasts on capital and rental growth, so more people are now considering buy-to-let as a viable option.”
One of the bigger surprises of the year, Brexit, seemed to have a greater impact on Romans’ local area than other parts of the country, the agent reports. Locally, the firm saw buyer activity slow down, as people adopted a wait-and-see approach over the vote’s immediate effect on house prices. As there was no instant change, the amount of people looking to move again has now been steadily increasing since August.
Gibson comments: “Interestingly, although the number of buyers dipped through the summer, we didn’t see an increase in the number of people who pulled out of their sale or purchase. In fact, there was a 10% decrease; reassuringly demonstrating that the buyers we had found for our clients’ properties were not only serious buyers, but also that both buyers and sellers remained un-phased by the result of the referendum.”
In addition, since the referendum in June, Romans has witnessed the level of new properties to the market rise by 6% compared with the same period last year, showing there is plenty of confidence and appetite from homeowners to move.
Right to Rent
An Estate Agent’s Predictions for the 2017 Property Market
As of 1st February, all landlords or their letting agents had to check the immigration status of all prospective tenants, to ensure that they have the right to live in the UK. The scheme made it more important than ever for landlords to stick to the law and comply with the regulations associated with the private rental sector. More importantly, on 1st December, failure to comply with the Right to Rent scheme became a criminal offence, carrying prison sentences.
Cook says: “We saw a number of landlords moving away from our let-only service, where they were responsible for the majority of the legislation applied to the buy-to-let market. Understandably, having an expert looking after all of this for them completely eradicates any risk. We advise our clients that unless they are a professional landlord and dedicate a lot of time to letting out property, they should definitely ensure they have a professional looking after it for them.”
Remember that our guides help you comply with all of the regulations you are subject to as a landlord: /guides/
Tax relief changes
This year, it was announced that a gradual introduction (from 2017 to 2020) would move landlords onto a reduction in tax relief on their finance costs to the basic rate. This restriction will be brought in from 6th April 2017.
Property professionals across the country hoped that the Stamp Duty surcharge would be scrapped in Philip Hammond’s first Autumn Statement in November, so many were surprised when the ban on lettings fees for tenants was announced.
Cook notes: “This is now going to committee, so we’re not sure on what the exact outcome will be, but I’d expect this to impact rental values. However, it’s widely anticipated that any changes to the legislation will take 12-18 months to come into effect.”
2017 property market predictions
As the past year has shown, no one really knows what the year ahead is going to hold. However, from what we do already know, Romans has put together its forecast for the 2017 property market.
On the whole, it is expecting a similar number of property sales in 2017 as 2016, as most home movers have motivations that don’t change with the political or economic landscape, such as a growing family.
For the movers that aren’t in a rush, the triggering of Article 50 and opinions on whether it will be a hard or soft Brexit may cause some delay to decision-making. However, house prices are expected to remain steady throughout the year (although sensitive to demand), with a few areas locally that Romans believes will buck the trend.
Gibson explains: “Crossrail is still going to play a part in house prices for the towns which are located along the Elizabeth Line, with West Drayton, Burnham, Maidenhead and Reading having already seen significant increases. Reading, however, has been highlighted as the fastest growing town or city in the country, with predicted annual GVA [gross value added] increase of 2.5% (London is the next highest, with 1.9%, and the UK average is 1.5%). But this isn’t just Crossrail; there is a lot of development in the town, including residential development and a new train station at Green Park.
“Other areas that are worthy of note are Staines, West Drayton, Colnbrook, Datchet and Windsor, following the recently announced go-ahead of the additional runway at Heathrow. We anticipate that it will be bitter sweet, as some areas will benefit from the significant investment being made to infrastructure, which will inevitably attract businesses. Others will find themselves in close proximity to the runway and the extra noise that is predicted – especially if they don’t fall into the compensation area.”
And if the ban on lettings fees for tenants does go through and monthly rental costs increase, buying could become an increasingly affordable option.
For landlords, Romans expects legislation in the buy-to-let market to continue changing. But there are some updates that we are aware of – the experts share how they think these will affect the sector:
Cook discusses the changes to tax relief for landlords: “Obviously this will have a greater effect on those landlords with higher mortgage leveraging. Up to half of landlords, who own their properties outright, will be unaffected. In addition, low interest rates on borrowing coupled with positive long-term outlooks on both rental and capital growth suggests that most landlords will take a long-term view and will retain their investments.”
The lettings fee ban announcement is likely to have an indirect effect on landlords across the country, the agent believes. Firstly, it is expected to push up letting agent fees and secondly, rent prices will rise.
Cook predicts: “Overall, this is likely to leave the landlord in a slightly better position. Add this to the widely speculated opinion rental growth will outstrip house prices over the next five years, and I believe buy-to-let is still a steady and reliable investment.”
Other changes the firm expects to see in 2017 is the Renters’ Rights Bill, which will include details on the lettings fee ban, extension of House in Multiple Occupation (HMO) licensing, with an introduction of minimum room sizes, mandatory electrical safety checks, a register of rogue landlords and letting agents, and compulsory Client Money Protection.
Cook concludes: “I can’t reiterate enough how important it has become for landlords to ensure they are completely up to date with all the legislation and the regular changes.”