Property Trends: What to Expect In 2017

4 APR, 2017 by Contributor

The property market has already had a strong start to 2017, with many estate agents reporting their busiest start to the year.

In fact, property specialists Leaders announced a 67 per cent increase in the amount of properties coming into the market during the first week of January 2017 compared with the monthly average in the fourth quarter of 2016.

With a potentially busy year ahead, it’s important to stay ahead of the game and look at what property trends are on the horizon – particularly when you take into consideration the effects that stamp duty taxation and the United Kingdom’s decision to leave the European Union will have on the economic and political landscape.

Here are some predictions as to how the property market will adapt throughout 2017.

Buy-to-let changes could equal higher tax brackets

On April 1st 2017, a phased reduction on mortgage interest tax relief for buy-to-let properties will be introduced and this could potentially affect landlords’ profits.

The reduction will see interest relief capped at 20%, instead of the usual 40% or 45%. The National Landlords Association estimates that this will push around 400,000 landlords into a higher tax bracket as a direct result of the changes.

The restrictions are due to be introduced in phases, which are all outlined below:

• Tax Year 2017/18:
  Deductible finance costs will be restricted to 75%, with 25% available as a basic rate income tax deduction.
• Tax Year 2018/19:
  Deductible finance costs will then be restricted to 50%, with 50% available as a basic rate income tax deduction.
• Tax Year 2019/20:
  Deductible finance costs will then restricted to 25%, with 75% available as a basic rate income tax deduction.
• Tax Year 2020/21:
  100% of the mortgage interest will be added back to the rental profit and the tax calculated according to the tax bracket in which the landlord falls into. A 20% deduction of the interest disallowed will be taken from the payable tax.

House ownership falling to its lowest level – what’s next?

In 2016, home ownership fell to 64% – the lowest level since 1986.

One of the reasons for this dramatic decrease in home ownership can be attributed to the fact that young people are opting to rent instead of purchase their own homes. In fact, the Local Government Association found that the number of 25-year-olds who owned their own properties in 2016 had fallen from 46% in 1996 to 26%.

The proportion of people who own their own home has fallen across every part of the UK since peak figures occurred in the early 2000s. In July 2016, Theresa May pledged to tackle the housing deficit, stating that:

“Young people will find it even harder to afford their own home. The divide between those who inherit wealth and those who don’t will become more pronounced. And more and more of the country’s money will go into expensive housing.”

It will be interesting to see how Theresa May will actually tackle the housing deficit by introducing schemes that will aim to create more affordable housing for UK residents.

Midlands and the North West expected to rise

Despite the fall in home ownership, the Midlands and the North West are expected to see increases in house prices.

A report by the Royal Institution of Chartered Surveyors (RICS)indicated that the North West and West Midlands are expected to become property hotspots in 2017.

The report found that house prices in the area could rise higher than the national average of 3%.

Article provided by LPC Living.

Replacement of Domestic Items Relief

Replacement of Domestic Items relief is introduced in letting of residential property business to replace the 10% wear and tear allowance that has been removed. The relief is available only for tax year from 6 April 2016 onwards.

If you are calculating your income tax for rental income falls in period prior to 6 April 2016, you may claim the 10% wear and tear allowance.

Domestic items

From 6 April 2016, you may be able to claim a relief for the cost of replacing furniture and fittings, also called the domestic items, in your buy to let properties. The relief covers the following domestic items.

• movable furniture for example beds, free-standing wardrobes
  • furnishings for example curtains, linens, carpets, floor coverings
  • household appliances for example televisions, fridges, freezers
  • kitchenware for example crockery, cutlery

The Replacement of Domestic Items relief is available and apply to unfurnished, part furnished or fully furnished residential property.

Replacing old furniture – beyond repair

You may claim the replacement of domestic items relief when you replace, say, a piece of broken and beyond repair furniture in your buy to let property. You buy a new furniture for your property for use by your tenants in that property.

This relief only available for replacement of domestic items not the initial cost of getting the items for your property.

Upgrade of old furniture – modern furnishing

If you are replacing your broken furniture in your buy to let, an upgrade version, say, a sofa with a sofa bed, the allowable deduction is limited to the cost of purchasing an equivalent of the original item. So if a new sofa would have cost you £400 but a sofa bed cost you £550, you could only claim the £400 as a deduction and no relief is available for the £150 difference.

When considering if the new item is an improvement on the old asset, the test is whether the replacement item is or is not, the same or substantially the same as the old item.

Changing the functionally, say from a sofa to a sofa bed, means the replacement is not substantially the same as the old item.

Changing the material or quality of the item also means the replacement is not substantially the same as the old item. Say you upgrade from synthetic fabric carpets to woollen carpets, the replacement is not substantially the same as the old item so there has been an improvement.

Importantly, if the replacement item is a reasonable modern equivalent, say a fridge with improved energy efficient rating compared to the old fridge, this is not considered to be an improvement and the full cost of the new item is eligible for relief.

In the example above, if you later purchase a replacement sofa bed for use in that buy to let property, you would be able to claim the full cost of this new sofa bed. This is provided there was no improvement on the old sofa bed and the old sofa bed is no longer available for use in that property.

Calculate the replacement of domestic items relief

When calculating the relief, you must take into account if your old domestic item is sold or part exchanged for the new item, and also the incidental costs of disposing of the old item or acquiring the replacement item.

The formula to work out the relief for the new item is as follows:

• the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent) plus
• the incidental costs of disposing of the old item or acquiring the replacement less
• any amounts received on disposal of the old item 

  Example

  Sheila has replaced a single, wooden framed bed in her rental property with a new double divan bed. The new double bed is an improvement on the old bed and Sheila paid £400 for it which is significantly more than the £150 it would have cost if she had replaced the old bed with a new equivalent wooden framed bed. Therefore Sheila cannot claim more than £150 of the purchase cost as a deduction. Sheila also paid an additional £20 to have the new bed delivered but managed to sell the old bed online for £30.

  Sheila needs to work out how much he can claim as a deduction:

  1. Cost of new replacement item limited to the cost of an equivalent new item £150
  2. Add the delivery charges £20
  3. Less proceed from selling the old bed £30
  4. Amount deductible under Replacement of Domestic Items Relief is £140.

  Furnished holiday Let

  If you replace a domestic item in a property which qualifies as a Furnished Holiday Let, Replacement of Domestic Items relief is not available. You will continue to be able to claim capital allowances on these items.

  Rent A room

  If you use the Rent a Room Scheme, Replacement of Domestic Items relief is not available.

  10% Wear and Tear allowance

  You cannot claim the 10% Wear and Tear allowance while also utilising the Replacement of Domestic Items relief.

Should Manchester be Britain’s capital city?

Top journalists at The Economist certainly think so, arguing the move would smash the north-south divide and save taxpayers millions on Westminster repair costs.

The argument over whether Manchester or Birmingham is the UK’s second city could finally be laid to rest.

Brummies may soon have to argue it out with Londonders.

Economist journalists reckon making Manchester the country’s capital would ‘change British politics for the better’, making it more affordable and accessible.

They say the move would ‘drive urban integration’, raise productivity and boost living standards.

Politicians on our patch have long argued the need the burst the establishment bubble. Economist bosses agree, insisting leaders would be much closer to ‘ordinary voters’ if our city took over from London.

Repairs to the Palace of Westminster are long overdue. The Victorian complex is crumbling, with at least £4bn needed to bring it up to scratch.

Moving both houses of Parliament out for up to eight years would be a massive undertaking.

Economist bosses say creating a ‘modern political centre’ has nothing to do with the state of Westminster, but about fixing the country’s traditional divide.

They argue the ‘establishment’ in many countries is split between multiple locations – Berlin and Munich, Toronto and Montreal, Sydney and Melbourne, Barcelona and Madrid.

That, they argue, makes the establishment ‘less complacent, blinkered and self-regarding’.

The Economist says Manchester could be the perfect counterbalance to London, capable of attracting government staff, the media, think tanks, investors and business leaders.

The magazine’s Bagehot column reads: “Manchester clearly has the edge. Its position as Britain’s de-facto second city is well-established.

“Its infrastructure is better than that of Birmingham, it has more space to grow, its airport already has twice the traffic and twice the number of international connections.”

The Manchester Central Convention Complex is suggested as the place to house the two houses of Parliament, with nearby rundown mills and warehouses perfect for offices for MPs and government departments.

The Prime Minister could work from Central Library, the column suggests.

“Perhaps moving Britain’s cockpit from the pompous, forbidding, Oxbridge-college air of Westminster to these airy Victorian temples of manufacturing and entrepreneurial ingenuity would improve politics, making it more optimistic, accessible and ambitious,” the column adds.

Manchester council leader Sir Richard Leese said addressing the north-south divide isn’t about where the capital is, but where cash is invested.

He said: “While it’s encouraging that Manchester’s strengths and potential are being increasingly recognised both nationally and internationally, we see our role as complementing London rather than competing with it.

“We know most Mancunians would consider our city the capital anyway. This is a bit of fun, but there is an important message behind it.

“If the government is serious about rebalancing the national economy and reducing the dominance of London, what matters most is not where is designated the capital city, but where the investment takes place.

“That’s why we are continuing to push for infrastructure investments such as HS2 and new transpennine route Northern Powerhouse rail to improve Manchester’s north-south and east-west connections and continuing investment in Manchester’s distinctive strengths – whether it’s pioneering research into advanced materials such as graphene led by our world-class scientists or groundbreaking cultural content as exemplified by Manchester International Festival and the Factory.”

It was the first fall on the mortgage lender’s index since June 2015 and surprised City economists who had forecast a 0.4 per cent increase in prices.

The housing market is expected to come under some pressure in 2017 as household finances are squeezed by a combination of rising inflation and weak wage growth, potentially deterring people from committing to major spending decisions.

However, economists believe a shortage of homes coming on to the market in the UK will bolster the market.

Howard Archer, UK chief at IHS Markit, said: “Markedly weakening consumer fundamentals, likely mounting caution over making major spending decisions, and elevated house price to earnings ratios are likely to weigh down on housing market activity and house prices.

“However, a shortage of supply is likely to put a floor under prices. Consequently, we believe house price gains over 2017 will be limited to around 2.5 per cent.”

Brian Murphy, head of lending at the Mortgage Advice Bureau, said a cooling of the UK housing market might enable more people to get on to the housing ladder.

“A slowing down of prices coupled with the ongoing near record low mortgage rates available may provide a welcome opportunity for those who want to get on to or move up the property ladder to take advantage of the current climate.

“Given that home ownership levels are at their lowest since the mid-80s, then any market conditions which may assist more people to buy their own property could be seen as a positive development, rather than a cause for concern.”

Looking at trends over the past decade, the Nationwide said home ownership in England was at the lowest level since 1985, at 62.9 per cent in 2016. Ownership rates among those aged 35-44 fell sharply to 56 per cent from 74 per cent in 2006.

The housing market is expected to come under some pressure in 2017

Over the first quarter, there was the least variation in regional house price performance in almost 40 years.

At 6.8 percentage points, the gap between the weakest and strongest performing regions was the lowest since 1978.

Robert Gardner, Nationwide’s chief economist said: “The south of England continued to see slightly stronger price growth than the north of England, but there was a further narrowing in the differential.

“Northern Ireland saw a slight pickup in annual house price growth, while conditions remained relatively subdued in Scotland and Wales.”

Manchester Strong Annual Growth Attractive For Investment

POSTED BY: RESIDENT    31/03/2017

Manchester property prices have seen strong annual growth in February 2017, up 8.8 per cent.

Sales volumes in the city have grown by 40 per cent in the past three years in the northern city. However, despite this significant growth, Manchester’s average house price is still £151,800, far below cities in the South of England, making it an attractive choice for investors.

The average house price growth in a UK city currently stands at 6.4 per cent, a decline from 7.8 per cent in 2016. Cities other than Manchester that have seen significant price rises include Portsmouth at 8.1 per cent, as well as Bristol and London at 8.0 per cent and 5.6 per cent respectively.

Director of mortgage services at LSL Financial Services, David Copland, said: ‘Liverpool, Birmingham and Manchester are all experiencing exceptional growth thanks to a booming job market and improved transport links. More people are therefore moving their attention away from the London property market, especially when looking to secure their first home. It will be interesting to see if the northern powerhouses continue to grow at this pace now Article 50 has been triggered; but with investment continuing to flow, I expect this only to continue.’

London and Bristol have seen turnover remain stable or decline slightly over the last few years, however Manchester, Liverpool, Leicester and Birmingham have experienced the opposite.

Insight director at Hometrack, Richard Donnell, has commented: ‘Levels of housing turnover across UK cities are expected to remain broadly flat over 2017.There is some further upside for sales volume in regional cities but much depends upon how would be buyers respond to external factors, not least the impact of lower real wage growth, the potential for higher mortgage rates and whether demand will be impacted by this week’s triggering of Article 50.’

30th March 2017

The UK property market is not set to see any major upheaval with the formal start to the two years of negotiation to leave the European Union, and might even benefit from an expected slowing in the economy.

Experts point out that the market did not see any huge effect from the decision to leave in the referendum last June and prices have been rising steadily with blips in London put down to stamp duty change. While price growth might slow, this could be good news for first time buyers who are seeing affordability getting worse, especially in London, while an economic slowdown should mean that the chance of interest rates rising is kept low which means borrowing costs stay low.

Fionnuala Earley, chief economist of Countrywide, pointed out that expectations before the June vote that house prices would collapse were very wide of the mark. ‘House prices are still rising across the UK and continue to grow in London, which is arguably more sensitive to Brexit.

But, over the medium term, it’s the effect of the outcome of negotiations on the UK’s economic performance, particularly jobs that will determine the effect on housing market prices and activity,’ she said. Lucian Cook, head of residential research at Savills believes it may well make the Bank of England reluctant to increase interest rates despite the recent increase in inflation. ‘This will preserve affordability and points to a low turnover market, with little upward or downward pressure on prices,’ he explained. The current demand for homes and lack of supply will outweigh the effects of any Brexit negotiation uncertainty, according to Russell Quirk, chief executive officer of eMoov, adding that it will be business as usual for the property market.

‘The London market remains impervious and, with such a shortage of stock, the overwhelming level of housing demand will plug any gaps of depleted buyer interest from further afield. Despite the high levels of uncertainty in the market, property values have continued to show signs of positive growth in 2017 and this will only strengthen as time goes on,’ he said. ‘Brexangst around leaving the EU has caused uncertainty in the market but the cooling rate of price growth over the end of last year has without a doubt been influenced more by the increases to stamp duty and second home tax, with both playing considerable roles in impacting the market,’ he pointed out.

‘With the initial Brexit fears now starting to subside and property values continuing to increase on both a monthly and annual basis, UK home owners should rest assured that the market remains one of the most resilient in the world,’ he added. Indeed, in one sense the triggering of Article 50 which has started the formal process of leaving is beneficial as it removes the uncertainty around when the withdrawal was going to start, according to Mark Lawrinson, regional sales director of Portico London estate agents. But he also pointed out that economic uncertainty is likely to continue as we still don’t know what Brexit actually means. ‘I think we will see a continued slowdown or lethargic London market when it comes to sales volumes, and as we reported toward the end of last year, transaction volumes across London are already more than half of what they were before the 2008 crash,’ he explained. ‘London has a significant part to play in businesses who trade and operate across Europe and the world, and a buoyant property market relies on the UK’s economic health. If Brexit negotiations go well this could cause further price growth as the economy grows. But if a good deal isn’t reached then the international companies who operate here or look to relocate here might change their minds, reducing the number of residents who live in the capital and again further reducing the transaction levels, which could ultimately lead to price decreases,’ he pointed out. However, Portico’s managing director Robert Nichols, added that as the negotiations progress there is likely to be stability into the housing market as people realise that the effects of Brexit are not catastrophic.

‘We’ll hopefully see transaction levels increase as a result, which are currently dangerously low and affecting price growth across the capital,’ he said. He also pointed out that if the Pound weakens this could fuel demand from overseas buyers and investors and the Bank of England could be hesitant to increase their interest rates and this will it will remain cheaper than ever to borrow and get on to the property ladder,’ he concluded.

By LIZZIE RIVERA

We ask property experts how leaving the EU could affect the capital’s housing market. Here’s what they predict…

Theresa May triggered Article 50 on Wednesday, kick-starting the Brexit process.

Two years of negotiations will follow this unprecedented move, and the economic impact remains far from certain.

The impact on Britain’s housing market will largely depend on the speed and success of the negotiations.

While last year’s vote to leave the EU contributed to significant uncertainty in the London property market, causing house price growth to slow and the number of transactions to fall, some experts expect activity to pick up once negotiations are underway.

1. The property market will become more stable
As every new landmark is ticked off the Brexit timeline – and the triggering of Article 50 is a major one – the property market gets another little boost of stability, encouraging people to get on with their lives. Years of low transactions are almost always followed by years of increased activity. With confidence returning, sellers are already demanding higher prices.
James Evans, CEO, Douglas & Gordon

2. Number of house sales will rise across the UK
The triggering of Article 50 should come as a sigh of relief to the residential property market, as the Government finally provides certainty that its plan for leaving the EU cannot be derailed. The UK property market is heavily reliant on confidence – something evident through transaction levels that have been suffering since the Brexit vote, especially in London where, according to our latest data, house sales are still down 20 per cent year-on-year.
Paul Smith, CEO, haart 

3. Interest rates won’t rise
It may well make the Bank of England reluctant to increase interest rates, despite the recent increase in inflation. This will preserve affordability and points to a low turnover market, with little upward or downward pressure on prices.
Lucian Cook, Head of Residential Research, Savills

4. Property price growth will be slow
The expectation, pre-referendum, that house prices would collapse was very wide of the mark. House prices are still rising across the UK and continue to grow in London, which is arguably more sensitive to Brexit. But, over the medium term, it’s the effect of the outcome of negotiations on the UK’s economic performance – particularly jobs that will determine the effect on housing market prices and activity.
Fionnuala Earley, Chief Economist, Countrywide

5. However, demand for homes will outweigh effects of any uncertainty
The London market remains impervious and, with such a shortage of stock, the overwhelming level of housing demand will plug any gaps of depleted buyer interest from further afield.
Founder of eMoov.co.uk, Russell Quirk

6. Londoners are likely to be the most cautious 
Caution is likely to be greatest in London, given the extent to which house prices have risen relative to earnings in the capital in the past 10 years. It means home buying represents a bigger financial commitment relative to the rest of the country against a backdrop of uncertainty.
Lucian Cook, Head of Residential Research, Savills

7. Prime central London property will remained relatively unaffected
With all events like this, a few buyers and investors may sit on their hands to see if anything changes, but the smart money will continue to invest in central London, especially overseas buyers making the most of the weakened pound and the discounts this provides.
Jonathan Hudson, Regional Executive for London – National Association of Estate Agents

8. International buyers will invest in the prime central property market
We feel that the impact has already reached us and the exit has simply weakened the pound, fuelling demand from overseas buyers and investors. It is important, however, to see that the deals that are happening are with sellers who have reduced their asking prices to reflect not just the impact of the referendum but the increase in stamp duty, particularly at the higher level.
Becky Fatemi, Managing Director of Rokstone

23 MAR, 2017 by Paulina Carl

Manchester’s population is currently growing almost 15 times faster than properties are being built, official figures have now revealed.

As Manchester Evening News reported, the extreme situation is a result of stagnating levels of house building and a growing population, meaning the current situation will only get worse over the next five years.

The latest figures showed that between 2015 and 2016 only 290 homes were built in Manchester’s city centre. This means Manchester housing merely grew by 0.13% over the same period of time.

When compared to Manchester’s population growth, the reality of the situation becomes even more clear. Between mid-2014 and mid-2015, the city population increased by more than 10,000 people.

As a result, this means that in 2015 more than 530,000 people were living in the city, a growth of 1.94%.

The high growth rate included both, more births than deaths and immigration, and means that housebuilding in the North’s capital is falling drastically short.

The report went on, revealing that Manchester’s housing shortage is actually one of the biggest one in the whole of England. The situation doesn’t change dramatically when looking outside of Manchester’s city centre. Oldham’s population rose five times faster than the number of dwellings being built, and Salford and Stockport had a population increase three times higher than their build rate.

Across England, house building rates only fell slightly behind population growth, with an increase in dwelling by 0.62% whilst the population grew by .086% – not an awful lot faster.

As average values in the north-west city soar 8.8%, price growth in London falls over 50% in just 12 months.

Summary:

• Property prices in the UK now rise fastest in Manchester
• Average values in the north-west city rose by 8.8% in the 12 months to February 2017
• But price growth in London stood at just 5.6%, down from 12.8% just one year previous

It’s been home to the UK’s highest yields over the last few years, but now Manchester can also boast the fastest property price growth in the country.

Average property values in the north-west city grew by 8.8% in the 12 months to February 2017, according to the latest data from Hometrack’s City House Price Index.

National price growth stood at 6.4%, with the average being brought down by London. The UK capital recorded price growth of 12.8% a year ago, but fell 56% over the last 12 months to just 5.6%.

London’s price growth is now bettered by nine regional cities. In addition to Manchester, these also include Bristol (8%), Glasgow (7.7%) and Birmingham (7.4%).

The report explains that the lack of affordability in cities in the south of England is weighing heavily on price growth, with transaction volumes also falling steadily in these cities over the last one to three years.

But it’s a different story in the regions. Sales volumes in Liverpool and Manchester have risen by more than 40% over the last three years, with greater affordability resulting in stronger buyer and investor demand.

Hometrack believes sales volumes will continue to decrease in cities such as London over the course of 2017. And while it’s also expecting slightly slower transaction volumes in the regions this year, the report does state that cities such as Manchester will continue to be the most popular among the investor community.

The report said: “We expect sales volumes to fall by around 5% in the highest value cities over 2017, as the market and pricing levels start to adjust to price sensitive and affordability constrained demand. We expect slower growth in volumes in regional cities where there remains continued upside for market activity and house prices on more attractive affordability.”

Friday, 24 March 2017 | MYT 5:54 PM

London Spring Place is one of the latest UK purpose built student accommodation projects marketed by Cornerstone International Properties.

 

KUALA LUMPUR: The weak post-Brexit pound and insufficient housing provide a good opportunity for Malaysian investors in the UK real estate market, said Cornerstone International Properties (CSI Properties). 

The Malaysia-based real estate investment consultancy said the UK would continue to face uncertainties once Article 50 of the Lisbon Treaty — the formal process of leaving the European Union (EU) is invoked. 

CSI Properties, in a statement on Friday, said the pound fell to a 31-year low against the US dollar since the EU Referendum, and took yet another beating when UK Parliament passed the Brexit bill this week. 

“Comparatively, the fall of the pound is more drastic than the ringgit. 

 

 

“House prices (in the UK) have taken a dip, particularly in London, and the combination of the two factors presents a good buying opportunity for Malaysian and other foreign investors looking to invest in UK property,” said CSI Properties spokesperson Virata Thaivasigamony. 

However, Virata said the window of opportunity for a favourable exchange rate might be a short one, citing predictions by the Bank of America that it expected the pound to suffer only another plunge, which would be its lowest, when Article 50 is invoke. 

“The UK will be on sale again. This will be the best time to take advantage of the pound as the currency will strengthen once official Brexit negotiations get underway,” he said. 

Virata added that more Malaysian investors were seeing the opportunity that Brexit presented, understanding that while there might be uncertainties ahead, UKs fundamentals were strong enough to ride out the Brexit process. 

CSI Properties saw a 60% increase in sales volumes in 2016 compared with 2015, of which more than half were from UK real estate, an indication that Malaysian investors were taking advantage of the current favourable exchange rate following Brexit. 

Additionally, he said more than 65% of the agency’s UK real estate sales came from UK student property alone. 

Virata said the UK student accommodation sector grew 37% since 2014 from £30.9bil to £42.5bil, making it one of the fastest growing asset classes in the UK property market. 

However, supply is still unable to keep up with demand, as studies showed that the UK needs 250,000 to 300,000 houses every year, but latest figures revealed that this target has consistently not been met, he said. 

He cited Lembaga Tabung Haji and GuocoLand as among Malaysian organisations that had made a significant presence in the UK property market. 

Tabung Haji has allocated RM2bil for real estate investments in the UK and Australia, while GuocoLand has expanded its portfolio for the UK and Australian markets through a strategic 27% stake in Eco World International. – Bernama