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General election set to slow UK prime property market
The UK’s prime housing market is expected to slow in the run up to next year’s election and resume steady growth thereafter, but a mansion tax could change the outlook dramatically. According to international real estate adviser Savills in its five year forecast report a mansion tax could negatively impact five year growth by an average of five percentage points. The high value prime markets, that is the top five to 10% of homes by value, have already been impacted by increased stamp duty, the introduction of an annual tax on enveloped dwellings (ATED) and the closure of certain tax loopholes. The rate of price growth has begun to slow, particularly in London. After five and half years of price growth and having absorbed a number of tax rises, London looks fully valued, particularly given the uncertainties surrounding the mansion tax as election year approaches. On this basis, Savills has issued two forecast scenarios: a central scenario and a second based on its estimates of the number of properties in different price bands over £2 million and the scale of possible mansion tax charges given current Labour party proposals. ‘Two out of the main political parties still favour some form of mansion tax so owners and buyers will be rightly factoring it into their decisions as the election approaches,’ said Sophie Chick, senior research analyst as Savills. ‘It would take some time for the markets to accurately price in the impact of a mansion tax, but the threat of it has already slowed the market. If it becomes clear that a mansion tax is to be introduced after May 2015, we would expect an immediate price adjustment before the market more rationally finds its level,’ she added. Without a mansion tax the Savills central forecast would see average prime UK house prices slipping 0.5% in 2015, assuming no further increases in the taxation of high value properties. Growth would be expected to resume post election, averaging 22.7% over the next five years across all prime London markets. Regionally, the recovery is yet to become fully established and the market has capacity for price growth to continue through next year, albeit averaging just 1%, the report says. Five year growth is forecast to average 23.9% across the UK, outperforming prime London, with prime commuter and lead city locations expected to show the strongest growth. Savills believes that a mansion tax, if implemented in the form most recently discussed, would trigger average price falls of 5% across prime London in 2015 and a fall of 3% across the prime regions. In a worst case scenario, the value of prime London properties over £10 million could fall by 10% and homes worth over £3 million regionally would fall 7%. Homes below the mansion tax threshold would not escape its effect, but the proposed progressive structure of the tax would limit the trickledown effect, with small falls of 2% anticipated. By 2017, the top end… Continue reading
UK landlords experiencing high levels of tenant demand, latest monthly survey shows
UK landlords are still experiencing high levels of demand during the third quarter of the year with just 3% reporting that it is declining, the latest monthly buy to let survey shows. Overall 41% of landlords surveyed said tenant demand was growing or booming and 51% said in their view demand was stable, according to the Private Rented Sector Trends survey from specialist lender Paragon Mortgages. The survey, which has been running for the past 13 years and tracks landlord confidence and their views on the wider buy to let market, also shows rental arrears are expected to remain stable. Looking ahead, 61% of landlords felt that the level of tenant arrears would remain stable over the next 12 months. In comparison 12% of landlords stated that in their view tenant arrears would increase and 8% expect a decrease. Landlords were also asked what the most important factor is when they are looking for new buy to let mortgage finance. Interest rates remained the most important, having been top of the list for the past 12 months, followed by average loan to value and product fee. ‘Our latest survey of landlords reveals that that the past quarter has been a stable and steady one, with just over a third of landlords saying they feel more optimistic about the prospects for their rental portfolios,’ said John Heron, the firm’s director of mortgages. At this point in the year, we can usually gauge how the wider buy to let market has performed and what likely lending volumes for the calendar year will be,’ he explained. He pointed out that last year, the Council of Mortgage Lenders (CML) reported total buy to let lending for 2013 as £20.7 billion. ‘Current thinking is that gross buy to let lending this year will be around the £25 billion mark, which represents a healthy increase over 2013 but there has been some evidence that the rate of growth has slowed as the year has progressed,’ added Heron. Continue reading
Industrial building driving UK construction growth, latest RICS survey shows
Industrial building is driving construction growth in the UK and the country’s office and industrial sector rents are expected to rise as their fastest rate since 1998 in the last quarter of 2014. Indeed, the UK has seen a sixth consecutive quarterly fall in office space availability nationwide with the decline at its fastest pace since the late 1990s according to the latest Commercial Market Survey from the Royal Institution of Chartered Surveyors (RICS). It also shows that the rise in transactions of commercial properties being sold with Permitted Development Rights (PDR) appears to be compounding the lack of availability, with two thirds of respondents to the survey suggesting that if PDR exemptions are not extended then availability of commercial properties will be impacted further. In London, 20% of respondents said PDR transactions had led to more than 10% of available commercial properties being earmarked for conversion into residential use and a net balance of 51% of surveyors reported a rise in demand for office, industrial and retail space. Across the whole of the UK, 32% more surveyors said availability across office, retail and industrial properties had fallen, while demand had risen to a net balance of 44%. RICS says it is significant that demand for industrial property grew on the previous quarter from a net balance of 49% in the second quarter to 56% in the third quarter and surveyors in London also saw a large rise in prospective overseas investors in the industrial sector of 73%. The picture across the UK appears increasingly upbeat, with the firmer tone spreading beyond the capital as the economic expansion gains greater traction. This is being reflected in rental expectations which are now in positive territory in all parts of the country in the office and industrial sectors. Retail remains something of a laggard with a flatter rental trend away from the more dynamic parts of the market. For the next 12 months a net balance of 71% surveyors are forecasting an increase in rent levels in London across all segments of the market, compared to 36% in the North of England. ‘The third quarter results provide further evidence that the economic expansion is becoming more broadly based with tenant demand for space picking up in all parts of the country and the need for landlords to provide inducements diminishing,’ said Simon Rubinsohn, RICS chief economist . ‘There are also now clear signs that investors are casting their nets wider in a bid to find better value in the market following the steep drop in yields on prime property in the capital,’ he added. He also pointed out that while permitted development rights is helping in a small way to boost much needed housing supply, the latest survey suggests that it is also having the unintended consequence of contributing towards a shortfall of office space in some parts of the country. ‘Feedback from members suggests that this is particularly marked in London and adding to the upward pressure on rents. Moreover, there is… Continue reading
