Knight Frank: What now for the housing market?

This change will hit both second home owners and residential investors. The initial response from the industry has been to suggest there will be a mass sell off of investment and second homes.
 
This is unlikely. There will be some people who will look to dispose of assets sooner rather than later, to avoid the prospective tax. However most investors in residential property are in the market for the long term. With interest rates so low, rental yields have become a more important driver of demand rather than short term capital price growth.
 
For a large number of investors, the real attraction of property at the current time is that the alternatives look very unattractive – cash provides almost no return and equities are regarded with barely disguised mistrust.
 
For second homes there will undoubtedly be potential buyers who will think twice about their purchases. However nearly three-quarters of second home buyers purchase a second home with the intention of retiring to the property in the future (according to the Knight Frank survey of second home ownership intentions – April 2010). Therefore for the majority of buyers the CGT changes are an irrelevance.
 
No mansion tax – a welcome admission of reality
 
If ever there was a populist tax proposal designed for its political rather than tax revenue advantages – the Mansion Tax was it. The proposal is now safely in the bin.
 
HIP abolition needs to go further

The announcement that the HIP is to join the mansion tax proposal in the bin is to be welcomed – it will encourage more speculative vendors to come into the marketplace and save vendors a lot of wasted money.
 
The need to provide an EPC, which is an European Union requirement, will remain and is still hurdle to get properties to market. The objective must be to follow the French and the Portuguese and require an EPC only when terms have been agreed on a sales – not prior to marketing. Only if this happens will the full damaging legacy of HIPs have been removed.
 
Stamp Duty changes

The new £25,000 zero rate band of Stamp Duty is now likely to become a permanent feature, Alistair Darling had introduced it as a temporary two year measure in his final budget – the Conservatives are wedded to extending this measure indefinitely. The new 5% £1m+ rate will be likely to survive the first budget and will still be introduced in April next year, leading to a flurry of sales late this year and early in 2011.
 
Silence on the mortgage market

Nothing to date has been mentioned abut the need to encouraging the re-growth of the residential mortgage-backed securities and covered bond markets. Without this is will be very hard for the main mortgage lenders to repay the £314bn they owe to the Bank of England, under the Special Liquidity Scheme, and which they are due to start paying back from next year.

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0 thoughts on “Knight Frank: What now for the housing market?

  1. Major Landlord

    The best thing about the events of the past week is that we now have a government which is committed to less meddling, less needless and costly bureaucracy, and which shows encouraging early signs of a willingness to listen to people who know their business.

    I am very optimistic that Grant Shapps will display all these qualities as he formulates future housing policy. I don’t expect that we will win everything we want, nor do I even mind. But he will be a refreshing change from the extreme socialist views of Healey, and his typically-Labour “I know best” stance. Landlords were set to suffer even more vicious and hateful attacks from Healey. Now he’ll have to vent his spleen on his garden.

    I personally have a short wishlist for Mr. Shapps:

    – proceed with the scrapping of HIPs, which have done so much to damage the sales market and so helped to undermine consumer confidence.
    – demand the registration of all tenancies. This would quickly identify the minority of scumbag landlords who don’t pay taxes, and don’t comply with deposit registration and safety regulations.
    – take a fair and even-handed look at the gross imbalance of rights for tenants compared to those of landlords. For example, it cannot be right that a deliberately defaulting tenant can stay put in a rented property for six months or more, defying court orders, abetted by local councils and the CAB, and causing financial hardship to owners who are often letting their own home to bolster their ailing personal finances. We need a fast-track court-managed repossession system that is fair, but effective in enforcing possession orders within days rather than months, and with real penalties for contempt of court.
    – finally, review the tax position on investment property – to discourage short-term speculation (the old system of taper relief raised more tax revenue, and encouraged longer-term investment), and give investors the opportunity to roll over their capital gains on disposals into new property investments, encouraging them to stay in letting, and trade up to better properties for their tenants.