Predictably the first quarter of this year is seeing a flurry of sales to landlords and investors before the 3% stamp duty surcharge comes into effect on 1 April. Buy To let lending was up 22% year on year for the month of January 2016. Unless you’re a cash buyer with an expensive solicitor, you’ve left it too late now to complete before the deadline, realistically offers to buy had to be accepted by the end of January at the latest. The big question now is what will happen to the market after the stamp duty change?
Savills thinks that there will be a slow down in transactions between April and the EU Referendum in June with economic uncertainty putting the brakes on buyer’s aspirations. If NLA research is to be believed, we could see a surge in properties coming up for sale as 19% of landlords say they plan to sell within the next 12 months. This could result in 500,000 properties coming onto the market in the next year and 100,000 every year thereafter for the next five years as landlords adjust their portfolios to take account of forthcoming tax changes. George Osborne, with his freshly acquired enthusiasm for homeownership, thinks that first time buyers will snap these properties up. Of course his Help To Buy scheme in London is only for new builds, so who knows where these first time buyers will get finance from and there is no guarantee that landlords will sell properties that will appeal to them. Landlords are more likely to sell off their least profitable and potentially least desirable units. Meanwhile local authorities are likely to suffer as they are forced to sell off their more expensive properties to pay for Housing Association Right to Buy – an estimated 500 per year in Islington – and are faced with an ever dwindling supply of properties from private landlords.
So what could this all mean for house prices in London – will the market pick up after the EU Referendum? BNP Paribas Real Estate asserts in its latest report that UK house prices will rise 20.1% in the next four years and London prices will be up 16.1%. This assumes average annual rises of 3.5 to 4% compared to 12.3% last year. I agree that if prices rise over the next few years we are looking at more subdued figures, but that assumes that London prices won’t dip. The report predicts that prices in some of London’s most expensive postcodes will dip because of stamp duty rises, ambitious pricing, over supply and weakening demand from overseas investors who are being deterred by global stock market and currency fluctuations. This is a particular deterrent for Far East investors, it says. But the report predicts that house prices overall will be supported by a shortage of newbuild properties caused largely by the loss of small and medium housebuilders in the last recession.
Will we see a bit of a slump from April to June 2016 as Savills predicts and then business as usual from the Autumn? I was on a panel debate at Share radio recently where we chewed over the recent changes in buy to let taxation and Merryn Somerset Webb, editor in chief of Moneyweek argued that prices would adjust to take account of the new stamp duty surcharge. So in effect they would fall by around 3%. The fact that prices will fall by 3% for some buyers – not owner occupiers – lends some unpredictability to this theory. We are entering a very uncertain period with a number of unanswered questions. How will landlord behaviour change? Will the UK remain in or leave the EU and what implications will that have for the Union with Scotland. Will the election of Sadiq Kahn as London Mayor with his wish list of rent control and restrictions on who can buy newbuild properties in London come to anything? How is the spread of licensing and Article 4 directions affecting landlord activity in London? The Bank of England is also toying with the idea of intervening in buy to let lending. Lenders see buy to let as very profitable, how might they respond to Bank of England interference or indeed a reduction in volume of buy to let business as some landlords reduce their portfolios and the number of new entrants diminishes?
There may be opportunities to be had in the next few years. Perhaps fewer people buying at auction will throw up some bargains and we may have the chance to buy properties local authorities are forced to sell. With fewer landlords buying, there could well be less competition. Is now a good time to invest in property? I spoke to a couple from Doncaster this week who buy terraced houses there for £60,000 and rent them for £500 per month. At those sort of values there is a lot less at stake, prices are likely to remain relatively stable over the next few years, with little scope for capital growth. But in London where the average house price is £500,000, and we have got used to substantial gains, a 5-10% price fall could be quite a shock. Certainly as a landlord you should always be aiming to buy at a good price and add value, not buy at the top of the market. I conclude that now is not a good time to buy in London, my advice is to step back, wait and see, at least until Autumn 2016.
