The start of a New Year is always an opportunity to reflect on the year that has just passed and look forward to the one that is about to begin.
2015 was generally a positive year for both the economy at large and the property market. The General Election in May returned a Tory Government with a workable majority and therefore a clear pathway forward.
Interest rates remained at historic lows for another year and, with inflation currently at around zero, the prognosis is for another year of the same lies ahead.
With demand outstripping supply for places to live, both the sales market and the private rental market saw price growth and good levels of activity and transactions.
Towards the end of 2015 however there was a noticeable reduction in the number of properties coming to the market and a subsequent slowing of both sales and lettings activity.
With a smaller selection of properties available to view and buy, some potential movers have held back from marketing their own properties, unsure of their ability to find a property to move to, and this, compounds the issue.
In theory, with high demand, low interest rates and a positive economic outlook, the key factors of the market look positive. However, affordability is a key driver of the market and, with tightened mortgage lending requirements and wages not keeping pace with house price inflation, the ability of people to move home has reduced.
The Government has announced a number of measures to try and increase the volumes of housebuilding in the UK and increase home ownership rather than see a continued growth in the private rental sector.
Reductions in mortgage tax relief for investors have been announced and an additional 3% stamp duty will become payable by investors or those looking for a second home when they make such a purchase.
These measures are unlikely to see an exodus of landlords from the market but will, undoubtedly, reduce the expansion of the buy to let sector which currently accounts for some 20% of households (4 million plus homes)across the UK.
Along with Help 2 Buy these measures should make it more competitive for first time buyers and others to acquire a property to live in rather than find themselves outmanoeuvred by an investor who was at a financial advantage due to the tax breaks they were receiving.
The stamp duty change comes into effect in April 2016 and so we are likely to see a rush of investor purchases in the first quarter of the year before a slowing in such activity.
Forecasts on interest rates are that they will remain low throughout most or all of 2016 and that will mean attractive mortgage schemes will still be available for those who can afford them.
All in all, our expectation is that 2016 will see a steady, if unspectacular, market with price growth still running ahead of inflation but probably at lower levels than seen recently. Rental values look set to hold firm with yields also staying steady. From April 2017 when buy to let mortgage tax relief reduces, we may see yields reduce slightly but with most landlords investing for the medium to long term, we don’t expect this to disturb the workings of the market too much.
As mentioned, affordability is the key ingredient and a steadier market will allow this factor to come back into balance.
To conclude, we therefore see no reason to hold off on any moving plans in 2016 and, as always, we are here to advise and assist you with your personal situation.
Michael Johnson
