What is really happening with the housing market?

What is really happening with the housing market?

As we approach mid-September, figures providing information on the growth of the housing market for 2017 are revealed and being compared to the figures of the previous year. This provides an opportunity to analyse the changes to the market in light of recent legislation.

House Prices

The housing market has remained steady with a stable rise in house prices. Up until July 2017 house prices have risen generally in the UK by 5.1%, with a month on month increase of 1.1%. Statistics from the Land Registry found that 3,406 house sales completed in the UK in May 2017, a 9% increase from 3,125 in May 2016.

This steady rise is particularly surprising due to the uncertain political and economic climate in the UK. However many have argued for caution in regard to this growth as estate agent and former RICS (Royal Institute of Chartered Surveyors) residential chairman warned that "house-price growth is being underpinned by a shortage of supply, including house-building historically low mortgage rates and relatively low employment, rather than strong buyer demand".

Rental Market

Coinciding with the rise in house prices, rent growth has proceeded to rise at a higher rate than house prices. RICS survey found that annual rental growth was at 3% above the annual rate growth of 2% for house prices. This is mainly due to two policies recently introduced by the government; higher rate stamp duty and the reduction of mortgage interest tax relief.

In April 2016 the higher rate stamp duty was introduced. This requires a buyer purchasing an additional property to pay an additional 3% stamp duty land tax. Research by direct line found that landlords are now paying an average £6,500 more on stamp duty. The effect that this policy was to have was particularly evident by the 10% rise of completed sales in March 2016.

The amount of tax relief that landlords would get on residential property finance costs are being reduced to the basic rate of tax from April. By April 2020 this will be cut back to 20%. This will affect the following finance costs:

  • Interest on mortgages
  • Loans
  • Overdrafts
  • Alternative finance returns
  • Fees and other incidental costs for getting or repaying mortgages and loans
  • Discounts
  • Premiums
  • Disguised interests

What's next?

As a result landlords are being pushed out of the market providing opportunities for first-time buyers to enter the property ladder with landlords making fewer transactions which had been the intention of the legislation. Therefore the future of the housing market remains uncertain with house prices steadily rising on an unreliable basis and the reducing rental market which is an integral part to the housing market, as stated by Paul Bagust from RICS "a functioning private rented sector is crucial to a healthy housing market".

If you are thinking buying or selling your home, or would like to discuss your individual requirements in further detail, our specialist Property team can help. Contact us today on 01603 693500 or email us using 'Make an enquiry' form. Appointments available at our Norwich, North Walsham, Sheringham and Brooke offices.