Rights of way over land are a constant source of dispute and, because the law relating to land is complex, such disputes all too frequently end up in avoidable court proceedings. A recent case heard by Bristol County Court was brought by a man who claimed...
It has to be said that the UK housing market has remained resilient through turbulent times. A post-Brexit price crash did not occur despite multitudinous predictions of tumbling values, and according to recent reports the total housing stock in the UK is now worth around £6.8 trillion, having grown by £1.5 trillion in just the last three years.
However, it is clear that after the ‘boom’ of recent years, growth in the residential property market is beginning to level off. But what are the factors that have contributed to this ‘slowdown’? And what action should investors take?
Last year’s vote to leave the EU sparked a considerable amount of uncertainty about the future of the UK economy, and the knock-on effect on the housing market. Brexit and the results of the most recent General Election have been among the most common reasons given for the sense of uncertainty and the consequential slowdown. Trouble in the economy can mean higher rates of inflation and less spending power for households - and while the future of our economy is unclear, this leads more homeowners to play it safe and stay put.
Stamp duty & tax changes
The effects of stamp duty on the housing market have been multifaceted. On the one hand, the increase in in the percentage of stamp duty for additional properties has cooled off the previously booming BTL market since the changes were introduced in 2016. SDLT is also said to be hindering the number of transactions due to the extra financial burden it presents. In an environment where affordability is already at its upper limits, stamp duty can be a deterrent for first time buyers and older downsizers alike.
Tough tax changes aimed at BTL landlords are also likely to have been one of the factors weighing on the market. Before April this year, landlords were taxed only on their profits. However, the new system being phased in will mean that they are taxed on turnover, which could mean a reduction in profits or even losses for some. This squeeze means that buy-to-let is no longer such an attractive option for investors looking to buy. It is also leading existing BTL landlords to consider selling up – recent research carried out by the Residential Landlord Association revealed that as many as one in five landlords are considering exiting the market due to the recent changes.
In the wake of the 2008 financial crash, banks have been forced to tighten mortgage approvals in measures designed not to allow potential buyers to borrow outside their means. This has had a knock-on effect on the housing market as with smaller loans available, buyers have less spending power. Whether the banks’ mortgage constraints will be lifted remains unclear, but a probable change of events is a rise in interest rates, predicted to arrive as early as next year. A higher cost of mortgages may in turn place an additional restriction on house price growth.
So, what is propping up prices?
Lack of supply is the main factor that has propped up prices so far. With the government’s current progress on the delivery of new housing, the shortage of supply is likely to continue for the foreseeable future. It is estimated that 300,000 houses per year are needed to meet demand, but only 190,000 were delivered last year – and if the trend continues, a price crash is highly unlikely.
What next for investors?
Although the signs don’t point to “brace for impact”, it is clear that returns on letting residential property are likely to dampen. That being said, it’s certainly not all bad news for residential landlords - depending on which part of the country you are invested in, your property could continue to bring great returns. But if you are in a location where growth is levelling off, diversifying your portfolio or branching out into a new location could be beneficial. So, what are landlords looking to as a more lucrative investment?
Market conditions in London have been tough in recent months, bringing down the national average growth - but the performance of the country’s regional hubs paint a different picture. For example, while prices in London dropped by an average of £3,000 to £482,000 in June, in the North East the average house gained £2,000 up to £130,000. With greater investment in regional infrastructure by the Government, and more and more young professionals choosing regional cities over London, the regional cities could prove a solid investment option for the future.
We have also seen many residential landlords taking action to diversify their investment portfolio by diverging into commercial property. In fact, according to Allsop, the number of residential landlords making the switch has tripled in the past three years. The commercial and residential markets tend to perform very differently, and as residential property becomes more restricted, commercial property can be the way to better returns.
When taking the next steps for your property portfolio, it’s essential that you get the right advice. At Harold Benjamin, our team of specialist property solicitors are highly experienced in all the legal aspects of property investment. We help individuals in the UK and across the globe to protect their interests and get the very best out of their investments. To find out more about how we can help you, call us today on 020 8422 5678 or get in touch via our website.