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16 December 2015
Property market predictions for 2016
As we near the end of 2015, Doug Crawford, CEO of My Home Move, the UK’s leading provider of mover conveyancing services, shares his views and predictions for the coming year.
Housing prices and market growth
- “A lack of housing supply, low interest rates and greater lending availability will see property prices remain high during 2016. We expect to see UK property prices rise by between 6% - 10% over the year, meaning the average property price could hit a high of £315,000 for the first time – eleven times the average salary.* Alongside this we’re predicting housing transactions to grow at a conservative 4.6%, mainly driven by the new build market, as the dearth of housing stock continues to dictate.”
- “Gifted deposits will continue to play a significant role in the first-time buyer market. In 2015, 1 in 20 UK properties (64,000) were purchased using a gifted deposit and we expect to see this increase by 2.5% throughout 2016 (100,000 properties).
“The cost of an average starter home increased by 3.8% to hit a record high of £215,000 in 2015 and as prices are not expected to fall, it’s a firm indication that the ‘Bank of Mum and Dad’ will be raided again. This, coupled with changes to the pension system brought in last April, now means the Bank of Mum, Dad and Grandparents has additional capital available to help fund the first-time buyer market.
- “Despite the Government’s pledge to deliver 400,000 new homes by the end of the decade, 200,000 of which will be affordable (capped at £250,000 outside of London and £450,000 inside the capital) 2 in 3 people believe these will still be too expensive if priced over £120,000.**
“This means that for those who don’t have access to a gifted deposit, getting on the property ladder is going to be a real struggle. Throughout 2016 we expect to see 40,000 new homes built, only 50% of the government’s annual target of 80,000, but just how many of these end up in the hands of first-time buyers is still up for discussion.”
- “For those wishing to move up the property ladder, we expect the situation to remain static for the next twelve months, as the lack of housing stock continues its stranglehold over the market.
“While changes to the Stamp Duty levy have had a positive impact for those wishing to sell above the £250,000 mark, it seems to be in vain - for unless those at the top of the ladder are encouraged to downsize, there just isn’t anywhere for ‘second steppers’ and ‘middle movers’ to go. Our research shows that estate agents favour additional changes to Stamp Duty (45%), including the removal of the housing tax for retirees at the top of the housing ladder, to keep the market moving.”
- “We expect the introduction of a 3% Stamp Duty levy for Buy-to-Let investors and second homeowners, announced during the Autumn Statement, will turbo-charge the housing market over the next four months as people race to beat the deadline before the changes bite in April. This will inevitably push up property prices in the short term, especially in locations popular with Buy-to-Let investors, such as London.
- “However, this measure will change the economics for investors in the long-term. Currently the Buy-to-Let market accounts for 14% of property transactions annually and we wouldn’t be surprised to see this figure fall over the second half of 2016; resulting in an overall market slowdown.”
- “As always, cash is king – and for those in the position to buy without a mortgage the market is moving in their favour and will continue to do so for the next year. These buyers have the flexibility to make quicker and higher offers than their mortgaged counterparts, and are often the gazumpers able to secure the property of their dreams.
- “However, the latest changes to Stamp Duty are likely to take their toll towards the second half of the year, as cash buyers looking for investment properties will have to pay the 3% surcharge. This is a bitter pill for the everyday investor, and a double-whammy for the top end of the market - which has already seen a 20% reduction*** in sales following the bankers’ bonuses scandal, which took cash out of the market, coupled with the 12% Stamp Duty levy introduced in December 2014.”
- “25% of our conveyancers have seen an increase in gazumping during 2015****, and as the market continues to favour cash buyers and those with flexible financing, instances of gazumping are likely to increase throughout 2016. A recent My Home Move poll of UK Estate Agents revealed that they witness on average 2 cases of gazumping a month.”****
- “Any rate rises will be slow and steady, and will be in advance of the economic need for them increase. This will allow the 2% inflation target to be planned for rather than reacted to. Commentators remain split on when it will happen, with estimations ranging from Q4 2015 to Q1 2017. However the earliest My Home Move would expect to see a 25 basis point rate rise is Q3 2016.
- “Despite the good intentions of the new Help-to-Buy ISA, we fear it may do nothing to revitalise the first-time buyer market for at least three years, due to the cap on the amount people can save.******
“As such we expect to see conservative market growth (4.6%), an increase in 95% LTV mortgage products from lenders and an announcement that the ‘Help to Buy’ mortgage guarantee scheme will continue past its deadline of 2016, until FTB activity picks up.”
- “Extending Right-to-Buy to housing associations on a voluntary basis will create more home owners but concerns exist over when and where the replacement social housing properties will be built. In the meantime we expect additional pressure will be put onto the private rental market as more people seek accommodation, in turn balancing the Buy-to-Let market as it works to recover from the implications of 3% SDLT imposed upon it.”
ONS Survey 2015: Average house price 2015: £286,000. Average salary 2015: £27,271
**Gorkana/My Home Move Affordable Housing Survey October 2015. 500 UK respondents.
***My Home Move poll of conveyancers (August 2015) and The Exchange
****My Home Move poll of UK Estate Agents (October 2015)
******Help to Buy ISA – based on saving a £10,000/5% deposit for a £200,000 home.