A Merry Christmas for first time buyers?

18/12/2017
A Merry Christmas for first time buyers?

Over the last month or so there have been a number of significant developments in the housing market; first there was the base rate rise, followed shortly afterwards by the stamp duty reduction for first time buyers and a pledge to build 300,000 new homes a year. It has led to a degree of speculation over the effect it will all have on the housing market.

As was reported last month, since the base rate rise is relatively small (+0.25%), most experts believe it is unlikely to have a major impact on people’s budgets, but could have a minor effect on confidence levels.

The changes to stamp duty, on the other hand, have split opinions, with some claiming that prices will rise to compensate for the reduction in the tax. Others believe it will increase first time buyers’ (FTBs) spending power and give the property market a timely boost.

The changes only apply to FTBs, who will no longer pay stamp duty on purchases of up to £300,000. For properties up to £500,000, there will be no stamp duty to pay on the first £300,000. For any purchases above £500,000 the standard stamp duty must be paid, creating an unwelcome pricing pinch point. Below that level, the savings could be as high as £5,000, although the average FTB will save around £1,654 (source: Halifax).

It is much too early for the new measures to show in the property indices. The stamp duty changes should create a surge of activity in the New Year, but will only appear in the indices a month or so later. The housebuilding programme could take several years to have a discernible effect.

In the meanwhile, the most up to date index, Rightmove’s, shows asking prices have been continuing to soften, with 37% of stock now listed at a lower price than when first marketed, at an average reduction of 6.3%. Overall, asking prices dropped by 0.8% last month, although that was the smallest fall in November since 2007.

Miles Shipside, Rightmove director, explains,

“In the run-up to the festive season many sellers are trying to tempt distracted buyers to look at their property by dangling the bauble of more attractive pricing given the quieter time of year and more challenging market.”

Hometrack’s October figures show prices continued to grow in the regional cities, such as Manchester and Birmingham. The London market, in contrast, has stalled, with the house price to earnings ratio hitting an all time high of 14.5x.

Interestingly, despite all the talk of a softening market, transaction volumes have been running consistently around 100,000 a month since 2014, but were up almost 10% in October when compared to the same period in 2016 (source: HMRC).

Although, at first glance, all this data might seem contradictory, in reality it is just highlighting how differently the market has been performing across the country. Falling transaction levels in the affluent areas of the South are being compensated for by higher activity in other areas.

And finally, everyone at Global Asset Finance Limited would like to wish you a very Merry Christmas and a prosperous New Year.

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