House prices in the UK rose by 9.7% in the year to January 2016, according to the Halifax, one of Britain’s biggest mortgage lenders. This marks the single biggest annual increase recorded since July 2014, when prices rose by more than 10%.
This figure represents a 1.7% increase on December 2015, pushing the average house price in the country up to £212,430. A year ago the price was just over £192,000; and apart from a slight dip in July last year, since June the figure has been over the psychologically important figure of £200,000.
Owning one’s home is something which has long been regarded as desirable in Britain, and is especially encouraged when the Conservative Party is in government, as it has been since May 2015. And currently the demand for new homes is outweighing the supply, inevitably pushing up prices.
But analysts see factors on the horizon which may cause a significant slow-down in property price rises in the longer term. The rise in prices is already outstripping wage growth; and as that differential increases, demand will fall, thus probably causing the rise in prices to level off. Furthermore, those who buy properties to let them are soon to be struck a double financial blow.
Firstly, from April 2016, all those buying a second home (including foreign buyers) will have to pay extra “stamp duty” – the tax on all house purchases over £125,000. There is a sliding scale of stamp duty. At the moment, no duty is payable on the first £125,000 of any property price; then there is 2% on the price between £125,001 and £250,000; 5% from there to £925,000; 10% between £925,001 and £1.5m; and 12% on everything over £1.5m.
From April, anyone buying a second home – whether they intend to let it or not – will have to add 3% on each of those bands, including the initial £125,000. So this will mean 3% stamp duty on everything up to £125,000, rising to 15% over £1.5m. This extra tax may see a rush to purchase in the next two months, but a notable decline in sales (and therefore the rate of price rises) is expected after that.
In the longer term, too, buyers of homes to let are facing serious tax increases. From 2020, landlords will no longer be able to deduct the cost of their mortgage interest from their rental income when they calculate the tax due. So tax will be paid on turnover rather than profit, meaning tax could be due on non-existent income. For higher-rate taxpayers, mortgage costs above 75pc of rental income will actually mean that the investments they have put in to buying to let will be loss-making.
According to the National Landlords Association, these measures are expected to lead to landlords selling off up to half a million properties in the next 12 months alone. Such an influx of property onto the market is also expected to keep price rises down, or even lead to a fall in prices in some parts of the country. No-one, though, expects house prices in London to fall significantly.
