Uncertainty ahead of the General Election dissipated once the results were in, with September seeing the fastest rise in house prices across the UK at 0.5%. However, despite continued growth in the UK economy and record low costs for borrowing, annual house price growth stood at just 3.9% at the end of October, with annual housing transactions appearing to have peaked at 1.2 million per year - still well below levels seen before the financial crisis.
For those in commercial property, the strong capital growth of recent years is likely to continue at a more sustainable pace, with Savills predicting an increased investor focus on rental growth and income returns. Investors are also likely to place greater emphasis on value-adding strategies such as refurbishment, with November data showing the thirty-ninth successive monthly rise in refurbishment work, with the pace of expansion the fastest since July.
Announcements in the Summer Budget and the Autumn Statement inspired a great deal of scrutiny of the buy-to-let market, with the debate continuing as to how large the effects will be of the tax changes and the higher level of stamp duty for buy-to-let investors. While the changes are certainly not inconsequential, the private rental sector accounts for around a fifth of the UK population and is a hugely important aspect of the housing sector. Many landlords, especially the owners of a portfolio of three or more houses, are likely to be committed to the sector, and while there may be increased levels of buy-to-let activity in the months ahead of the changes, in the long view, the impact of the higher costs are unlikely to have a significant impact on landlord activity in what for them is a long term investment. It is likely that the first quarter will be a busy buy-to-let period as landlords try to get deals done ahead of the new stamp duty changes.
The appearance of more first time buyers in the market is a positive sign, as is evidence that government schemes such as the Help to Buy programme are working as intended. However, supply side issues continue to provide the biggest constraint on the market, and this is unlikely to diminish over the next 12 months. The ambitious plan to build 400,000 new affordable homes by the end of the decade is extremely welcome, and is one part of what is becoming a multi-layered strategy from the government to deal with the lack of homes being built. On the local level, the proposed changes to planning regulations to hand local authorities more power to determine whether green belt land can be built on is a positive step, as much of the green belt is poor quality scrub land rather than the rolling hills most people picture. However, it is likely to be a while before the effects of this building are felt, and in the meantime we are likely to see pressures on housing supply continue into 2016, with recent data from RICS showing a lack of new stock coming onto the market. The survey for November showed that new instructions to sell fell for the tenth consecutive month with a net balance of 8% of respondents reporting a decrease in new stock coming up for sale.
Nonetheless, we see that the overall forecast for the 2016 mortgage market remains positive overall and that the end of the year will bring not just festive cheer but also a good outlook for 2016.
Attributed to Charles Haresnape, Group Managing Director - Mortgages, Aldermore
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