The final quarter of 2013 was incredibly buoyant, particularly around the festive time of year when expectations for the housing market are often quite reserved. In fact December 2013 was our busiest December on record and the market continued to out perform well into the new year.
As 2014 began the market showed no signs of slowing and during the first half of 2014 the conditions were just as tenacious as the final months of 2013 had been. Both asking prices and activity levels were very strong across all regions and Rightmove reported that average asking prices were up by 1% (+£2,406), which was the largest ever January rise in the price of property coming to market. Over the first two weeks of January 2014 both website traffic and email leads to agents and developers hit records for the time of year, up nearly 20% on 2013.
The increased prices and activity levels did lead to some fears about the market conditions gathering too much momentum, however these fears were particularly centralised around the Capital and Southern regions of the country, who were reporting dramatic price increases and significantly diminishing stock levels that was accelerating demand to new highs.The market in the North West of England and Yorkshire, whilst still enjoying it’s own favorable conditions with high levels of demand from purchasers, did not see quite the same price rises that the capital did. Increased prices within our local market were far more moderate than the double digit price rise reports seen in the national news headlines.
Whilst the buoyancy of the market was good news for property sellers, the conditions themselves also created problems as fears mounted that the property market was overheating, and steps were taken to try and cool the market.
In April 2014 there were big changes in store for the mortgage market as the Mortgage Market Review (MMR) came into place. This represented the biggest changes in mortgage regulation in a decade.
A borrower’s ability to afford the mortgage, both now and in the future, will now be assessed subject to a ‘stress test’ as part of the new regulatory regime, as is evidencing a borrower’s income in all cases. For those buying with smaller deposits and consequently higher loan to value mortgages the degree of scrutiny is likely to be higher.
Where lenders had previously used income multiples to calculate the amount borrowers were able to borrow, this has now changed to using an affordability model where a borrower’s income and expenditure will be examined to determine what proportion of net income is available to repay a mortgage both today and in the future, if and when interest rates rise as they are expected to at some stage. Factors such as discretionary outgoings, including how much of their income they spend on utility bills, food, and other household expenditure including insurances, pensions and childcare costs (where appropriate) plus other types of expenditure are now assessed.
This was a step towards cooling the market whilst bringing affordability back to the top of the list of priorities for lenders when offering mortgage finances.
The market appeared to peak around Summer 2014 and the later half of 2014 has seen a more subdued market following an incredibly busy 18 months.
As the Autumn budget was announced on 3rd December 2014 Chancellor George Osborne revealed significant changes to the current Stamp Duty system that could provide a welcome resurgence in the market.
Under the previous stamp duty system the percentage of stamp duty that purchasers paid was subject to the price of the property and the amount was payable on the whole price of the property, not just the amount that falls within the stamp duty bracket. So for example if a property was sold at £130,000 then a 1% stamp duty was payable on the full asking price resulting in purchasers paying £1,300. Reforms to the Stamp duty system now though means that buyers will have to pay only to that part of the property price that falls within each band:
The changes came into effect at midnight on 3rd December 2014 allowing anyone purchasing a property after 4th December 2014 below £925,000 to make a saving of up to thousands on their stamp duty bill.
For a purchase at £275,000 the previous stamp duty would have been £8,250 as there would have been a 3% charge on the full purchase price.
Under the new system purchasers will have to pay:
£0 on the first £125,000
2% on the value between £125,000 and £250,000 (2% of £125,000 is £2,500)
5% on the remaining (5% of £5,000 is £1,250). Creating a final bill of just £2,750
Mr Osborne said the changes would save £4,500 on the cost of an average home and cut stamp duty for 98% of house-buyers and described the system as a “fair, workable, lasting reform to the taxation of housing.”
Richard Powell, Director at Ryder and Dutton said, ‘The Royal Institution of Chartered Surveyors have been calling for reforms to the Stamp Duty system for some time and so newly implemented changes are fantastic for both buyers and sellers. Not only does the scheme allow purchasers to make a saving on their Stamp Duty bill, making the cost of moving more affordable, but sellers do not face the same restrictions imposed by Stamp duty thresholds when they are pricing their properties for sale. Previously sellers and agents had the pressure of ensuring properties were priced to tempt buyers within the restrictions of the Stamp Duty thresholds.
It is an especially welcome move within our local area as there are a great many buyers that will benefit from these savings. Almost all the properties that are sold within our region fall within a price range that stands to make a saving on stamp duty costs.
We look forward to seeing what the market has in store for 2015. The general election that is set to take place in the Spring could have an impact on activity levels as traditionally activity slows down whilst buyers wait to see the results, however the stamp duty reforms will have a positive effect on the market as purchasers enjoy more affordable stamp duty costs, and interest rates are still very low as we approach the 70th month that rates are held at a record 0.5%.
We look to see what the market brings in 2015.