2016 Could Hurt Property Prices - but only in some places!
Cause and Effect
Being a property owner can sometimes feel like a visit to the dentist, you anticipate some pain, you hope he or she will avoid probing into the obvious defects and there is always the possibility of a painful extraction, with the inevitable impact on a vital asset.
In recent years the private sector house market has been the target of tax initiatives which at times made many a home owner grind their teeth or smile widely, depending on which sector of the market their property was sitting in. Tax initiatives and lack of supply have influenced the market more than the historical norms of employment and economic stability.
Not so long ago the Chancellor of the Exchequer George Osborne introduced Help to Buy - we told him it would fuel a bubble in the property market and guess what, it did! But what politician will really listen to the ordinary person or professional who happens to be in the know?
The house price upturn commenced in earnest when the Help to Buy scheme was introduced. Then, in December 2014, we saw Stamp Duty changes which nearly killed off house transactions in excess of £2.0m. outside of London. This resulted in a loss of revenue from Stamp Duty for HMRC due to significantly reduced transaction levels in the £1.5m. to £4m. sector. More recently, there were changes introduced in the Autumn 2015 statement from the Chancellor aimed at reversing some damage by hitting the Buy to Let sector.
Give George and the Conservatives credit, because they appear to know what they are doing when it comes to the wider economy and Great Britain is currently much better off in their hands. However, I am yet to be convinced about their property market interventions because time and time again political interference has skewed the market and not at all helped those trying to get on the ladder.
Looking ahead into 2016 and the first market change is likely to be that London house prices could fall. This is not a property crash prediction, merely a price correction prediction.
Why London? Because average real dwelling prices have soared by up to 40% since the beginning of 2013, more than offsetting all losses triggered by the financial crisis. London house prices, in real terms, are 6% above their previous 2007 peak despite nationwide prices having declined by 18%. The decoupling of the London real estate market from the rest of the UK is probably the most extreme I have witnessed during my 40 years of operating in the property market. Overseas buyers demand largely explains current valuations and global geopolitical risks have helped to propel London house prices to new heights.
2016 Growth and Optimism
Outside of London the market has not moved upwards at the same pace so we believe Surrey, Berkshire and Hampshire will not be affected by the chill about to hit London. In our prime area of operation there is an entirely different set of circumstances at work, such as low stock, slow price increases and high demand, so fortunately for McCarthy Holden and its clients we can look forward to a very Happy New Year in 2016.
Chairman and Managing Director