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A look into our crystal ball, 2018, key trends to look out for

As the unpredictable, uncertain 2017 draws to a close, we have reflected on the year behind us and have taken a brief look at the key trends to look out for in 2018.

  1. Without doubt the housing sector will remain top of the government’s agenda in 2018, ahead of Brexit. With many considering supply shortages as the biggest threat to the UK economy, in our recent article entitled “Without the right foundations, 300,000 new homes will simply not get built” we consider the true changes needed to boost housing supply in 2018, including proper collaboration between the public and private sector and proper reform of the planning system. Could 2018 be the year that the government introduces significant changes to truly drive the housebuilding sector forward?
  2. Should economic growth exceed expectations in 2018, it is likely the Monetary Policy Committee will raise interest rates, with some predicting a double rate rise over the course of the year. Whilst the Royal Wedding in May is predicted to boost the UK economy, a rate rise will also greatly depend on whether inflation has now reached a peak. However, a 25 – 50 bps rate rise to historically low rates, is unlikely to have any significant consequences to the housing market in the short term. In the third quarter of the year, the Building Societies Association reported that 90% of new mortgages taken out with Building Societies were on a fixed rate. The real impact of rate rises and the time to truly be concerned is yet to come, when, in 2/3/5 years’ time these fixed rates expire, and homeowners find themselves on much higher variable rates or having to choose between other higher rate products.
  3. A year ago, we predicted a continued rise in the Build-to-Rent sector as stretched affordability in certain parts of the country would leave the desire for home-ownership as a distant dream for many, increasing demand for quality rented accommodation. Affordability issues have not disappeared and therefore this sector continues to grow, and we anticipate this to remain the case in 2018.
  4. The main tranche of the market where we expect further strong activity is that of the first-time buyers (FTBs). In 2017 FTB activity was significant; according to UK Finance, there was a 10.5% increase in the number of loans for house purchase to FTBs in October 2017 when compared to a year earlier. We expect this trend to continue boosted by the extension in Help-to-Buy and importantly, the scrapping of stamp duty for FTBs up to £300k on properties valued less than £500k. This should also encourage developers to build units below this threshold as this, in the right location, is where they should find a steady stream of demand.
  5. And lastly, whilst market growth will be muted in 2018, we do anticipate above-average growth in the North West, North East and Yorkshire and Humberside. Regions where affordability is most stretched, including London and the South East, are likely to underperform the rest of the country. However, even within this part of the country, there will continue to be some growth in some locations, such as in the up and coming London boroughs, those benefiting from the Elizabeth Line, and along the commuter belt where prices will remain under upward pressure because of supply shortages.

Will they, won’t they? What to expect (or not) in the Autumn Budget

The Autumn Budget is almost upon us and, we have been mulling over what important changes we expect the Chancellor to make.

We anticipate that there will be a change to the way Stamp Duty is structured: the publication of Theresa May’s White Paper earlier in the year identified a broken housing market, and coupled with this and the slowdown nationally in transaction volumes off the back of political and economic uncertainty, change to stamp duty would be a logical next step to fix this.

What we think is unlikely, but not off the table completely, is that there will be any big adjustment at the top end of the market, in the +£1 million category. A small reduction in the charges at the prime end could have a big impact on liquidity, however this is probably not where the Chancellor will be focussed.

A more plausible scenario is another stamp duty holiday for first time buyers, similar to that between 2010 and 2012, when properties below £250,000 were exempt from stamp duty. A move like this is unlikely to have much impact in London where average property prices are £483,568, according to HM Land Registry, but could help improve liquidity in the rest of the UK.  A stamp duty holiday together with the continuation of Help to Buy, will benefit this important part of the housing sector.

There have also been calls for the Government to remove stamp duty entirely for older homeowners, to encourage people to downsize. It’s hard to see how this could be implemented but supporters say this would help increase the supply of family sized homes. A guise of this in conjunction with further stimulus for increasing housing supply, rather than just supporting demand, may be at the forefront of the Budget. For example, the government could give corporate tax reductions to encourage developers to deliver new housing in certain areas where there is a particular supply and demand imbalance.

Lastly, in a bid to win back some popularity amongst the younger generations, we anticipate a probable shake-up of student loans, something that would help support the student sector.

Watch this space…

Our 2017 Spring Budget round-up

Overall the Spring budget last week was rather lacklustre and surprisingly there was absolutely no mention of the housing sector. In particular, there was no statement of any changes to stamp duty, which many were hoping would be reduced to ease the burden for home buyers.

Some of the key points we noted were:

  • The Office for Budget Responsibility (OBR) has revised up its growth forecast for 2017 from 1.4% to 2%, however it downgraded the outlook for 2018 to 1.6% before picking back up by 2021.
  • Additionally, the OBR raised its forecast for inflation to 2.4% but this is expected to fall to 2.3% in 2018 and 2% in 2019. Arguably this suggests there is less pressure for the Monetary Policy Committee to raise interest rates to curb inflation, which is good news for home owners. However, the National Institute of Economic and Social Research expects inflation to be much higher at the end of this year.
  • The most controversial change was the increase in the main rate of Class 4 National Insurance contributions for the self-employed, to 10% by April 2018 and 11% in April 2019. This announcement has caused some backlash with thehouses and coins on a chess board.government being accused of breaking their 2015 election manifesto pledge to not increase personal tax. Such was the backlash that there has already been a U-turn on this decision.
  • Small business owners and investors will also be hit by the cut in the tax-free dividend allowance which will fall from £5,000 to £2,000.
  • Whilst there was no mention of the housing sector, the Chancellor did announce transport spending of £90m for the north of England and £23m for the Midlands to address pinch points on the roads. An improvement in infrastructure should positively impact on the housebuilding industry.
  • There was a focus on easing the burden of the increases in business rates with the announcement of a £300m discretionary relief fund for the worst hit, and a capping of business rate rises at £50 a month for those leaving small business rate relief. Additionally, pubs with a rateable value of less than £100,000 will receive a £1000 discount on their business rates. This is better news for local businesses and town centres.

Whilst the Spring budget didn’t mention housing, or make any changes to the heavy burden of stamp duty, the recently published White Paper did cover the government’s plans for housing.

This can be viewed here: https://www.gov.uk/government/collections/housing-white-paper