London property market: buy-to-let stamp duty biting back
MANUEL MAZZONI CERANELLI reports.
New research by NatWest has found that there are concerns amongst mortgage brokers about the potential for continued growth in the Buy-to-Let (BTL) mortgage market during 2016.
Changes to regulations, which originally were intended to help first-time buyers, and surcharges on stamp duty are likely to leave them worse off.
As recently noted by the Evening Standard, “when the financial crisis broke in 2007 and house prices took a tumble, there was a sharp slowdown in demand for mortgages from first-time buyers but buy-to-let purchasers carried on as it nothing much had happened.”
A similar pattern is now re-emerging, mainly due to changes in demand, shifts in supply and pricing.
DEMAND AND SUPPLY / London is witnessing an unprecedented housing shortage as the number of prospective buyers dramatically outweighs the number of properties on sale.
The increase in tax and regulatory burden brought uncertainty about how changes will impact the market, with landlords holding onto the properties rather than putting them up for sale. Fewer properties on the market mean fewer opportunities for first-time buyers to get onto the property ladder.
According to property specialists Rightmove and Zoopla, in January 2016 there were fewer flats up for sale compared to one year ago. With the new 3% surcharge on Stamp Duty coming into force on 1 April, the trend is expected to continue in the foreseeable future.
OPPORTUNITY / The increase in stamp for expensive homes (above £1million) and the 3% surcharge on second-home purchases have discouraged investors and wealthy people from buying homes in prime-locations in London with knock-on impacts on both the top-end of the property market (Kensington and Chelsea have experienced a decrease in property prices between 15 per cent and 18 per cent in the last year alone, according to a recent survey by Savills) and the wider economy.
Russian oligarchs, Arabian businessmen and other wealthy overseas investors, who have traditionally chosen London as their prime residence, may now consider moving their wealth and investments elsewhere.
PRICING / The increase in stamp duties are likely to increase the average cost of properties most appealing to first-time buyers in central London. Currently in the £400k and £500k range, recent changes in regulations and taxes are likely to push the range even higher making purchases less affordable even to households with a combined annual income of £100k .
Rent increases by landlords and low interest rate levels coupled with less property in the market make a perfect mix to a further increase of pricing; hence putting even more first-time buyers out of reach of pursuing the dream of a home.
UK property focus: private debt and mortgages
STEFANO FRANCESCO FUGAZZI reports. Data sourced from the BANK OF ENGLAND
Debt levels of households and private non-financial companies in the United Kingdom remain historically high, at around 165% of GDP (Chart 1). While the ratio of UK household debt to income has fallen since 2008, as nominal incomes have increased more rapidly than household debt, it remains high by historical standards and relative to similar metrics in other advanced economies.
A particular feature of the UK mortgage market is that a large proportion of the stock of mortgages is on variable rates (approximately 70% of total lending) compared to other leading advanced economies (Chart A).