Market Update:

The end of a year seems an obvious time to reflect on the year just gone whilst looking forward to the year ahead.

2014 has, in general, been a good one for the residential sales market with an increase in the levels of transactions as well as in house prices. The residential lettings market has also seen some growth in rental values and transaction levels remain strong.

With interest rates having remained at record lows throughout the year, the cost of borrowing has proven affordable for many and, despite a tightening of the criteria and processes being applied by lenders following the Mortgage Market Review in April, mortgage lending has been strong in both home purchase, buy to let and re-mortgage markets.

The changes to stamp duty introduced by the Government in early December have, as is often the case with changes in taxation, created winners and losers although the removal of the “slab effect” of the stamp duty banding has removed the pressure from certain price points. It is estimated that around 98% of property transactions will see the buyer better off with only those purchasing above £937,500 being worse off.

Buyers at the higher price ranges in excess of £1.5m are now paying a significantly higher level of stamp duty and it seems likely that this may have a dampening effect on property values at the top end.

As we enter 2015 the almost frenzied levels of buyer interest that were seen early in 2014 have subsided and the pace of house price increases has slowed. Both Rightmove and Zoopla have recently reported significant reductions in asking prices as sellers expectations become more realistic and in line with buyer’s reality.

The market however remains strong. Demand is still generally running ahead of supply which means property prices are likely to stay strong or grow in the months ahead, albeit at a slower rate than a year ago.

Whilst new home building has increased, it still falls way short of the growing demand for housing and this again is likely to ensure that property values stay strong an increase into the future.

The private rental sector is firmly established as a tenure both of necessity, but also of choice, for many and we have seen many buy to let investors continuing to grow the size of their portfolios.

The UK economy is growing and unemployment is falling. Wage inflation is however negligible and consumer spending is curtailed. This is bad news in terms of generating tax revenue and the much needed “feel good” factor remains elusive. It is however making an early rise in interest rates less likely and therefore mortgage borrowing is likely to remain very affordable throughout the forthcoming year.

2015 will see a General Election and, with the result too close to call, this is bound to create uncertainty in the market and a slowing down of activity.

There are a few clear differences between the political parties in regards housing with Labour and the Liberal Democrats talking about a “Mansion Tax” being levied on all properties over £2 million in value. This tax would be levied annually and is anticipated to operate at a level of 1% of the property value every year (£20,000 plus).

Irrespective of whichever party is elected, we are likely to see greater regulation in the lettings market but Labour have also stated that they will be looking to abolish fees paid by tenants as part of the rental process.

This is likely to cause disruption in the market as the fees paid by tenants for referencing, the drawing up of agreements, inventories, tenancy deposit management etc. will have to be covered somehow and, if the landlord is going to incur increased costs it will either lead to increases in rental levels or to some landlords withdrawing from the market and thereby a reduced availability of properties to rent which, in turn, would see rental values rise.

My prognosis for the year ahead is generally one of cautious optimism in anticipation of a market operating on a fairly even keel with low interest rates and the excess of demand over supply continuing to drive property prices in a positive direction.

I feel that the same is true for the rental market. The obvious caveat to these views is the outcome of the General Election and any radical interference from Government in the market.

Finally, I would like to take this opportunity to wish you, your family and friends a happy, healthy and prosperous 2015!

Yours

Peter Lawrence