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The Property Market Monthly Fact File - March 2014
The property market fact file is a collection of data compiled each month by our Chartered Surveyors and the propertysurveying.co.uk team; collating survey data, statistics, trends and information from the property market. This aims to provide a single place where anyone with an interest in UK property can find the information they need.
To read the monthly fact file, click here.

Spring Budget Special

Pension Reforms Will Affect Demand for Property

Buy to Let Property Boost

Annuities Changes will enable individuals to take charge of their pensions over the next year, as new rules are implemented to allow pension holders to create their own pension income. Many wealthier individuals are likely to look for buy-to-let property and hope to achieve a buy-to-let rental income; with the added benefits of the long-term prospect of capital growth which will, unlike annuities, be able to be inherited by the family.

This is likely to increase demand for properties suitable for buy-to-let over the next 12 months as these measures are introduced, potentially inflating house prices and deflating market rents.  

Bank of Grandparents set to be raided for Deposits

It is also very likely that the generation now retiring with the benefit of a pension pot will have greater liquidity and will therefore be more likely to help offspring with a deposit to enable them to purchase their own home. This will create a greater supply of prospective property purchasers and ultimately generate an increase in the volume, and potentially price, of transactions.

Corporate Property Ownership

Company Property Taxation Increase - addressing empty homes through ATED

A m easure to discourage the practice of corporate entities buying property as a safe place for profits, but leaving it dormant, these changes aim to reduce the number of larger properties remaining empty, combat the avoidance of Stamp Duty Land Tax and minimise schemes to protect property asset values from Inheritance Land Tax.

The changes to the 2013 tax "Annual Tax on Enveloped Dwellings", which was introduced to reduce corporate property purchases, has had the threshold at which it becomes enforceable reduced to £500,000 from the previous level of £2,000,000. This is generally aimed at foreign nationals and persons trying to avoid UK Tax, but the substantial increase will undoubtedly greatly increase the scope of the tax and impact potentially hundreds more corporations.

That said, the tax does not apply when the property is permanently let, thereby targeting only Britain's Housing shortage without putting undue costs on the companies driving the UK's economic recovery.

Empty homes worth between £500,000 and £1,000,000 will be charged at £3,500 per annum and homes over £1,000,000 will be taxed at £7,000 per annum. Additional rates can be viewed on this link.

Corporate Property Ownership Taxation Increase - Stamp Duty Tax

Anyone buying property through a corporate entity will have to pay 15% stamp duty. This is notably more than the present percentage of 4% if bought as a private property with a value between £500,000 to £1million.   

Help to Buy

The Help to Buy Equity Loan Scheme, which is aimed at encouraging developers to provide an additional 120,000 new homes, will be extended to the end of the decade.

Extending the scheme, which offers a loan of up to 20% of the value of a new home, equates to a substantial fiscal boost to the larger listed house builders and it is not seen by all in the sector as a good move. In particular, commitment to such a long-term level of artificial support will undoubtedly affect the true economics of the market and may artificially inflate house prices. Many industry insiders believe it has already done so.

The Chief Executive of Taylor Wimpey has been reported as stating: “a long term extension at the current level is further than I would have gone”. 

Which is an interesting position considering that the larger house building companies have enjoyed a substantial boost from the scheme - translating to a recent string of positive profit announcements. With the banking sector simultaneously strengthening and increasing the availability of finance, it is not yet clear what exact impact Help-to-Buy has had.   

Housebuilders £500m builders finance fund announced | £150m Councils Funding for Sites Announced | New Garden Cities to be Encouraged

The Chancellor announced that a £500m finance fund is being created which will offer loans to small developers and jump start building on sites of up to 250 homes. The idea is to reinvigorate projects stalled by a previous inability to secure finance and it comes in the context of industry experts' comments that the level of current construction is only half of what it needs to be to satisfy demand.

A few other smaller adjustments to the market place include a £150m fund for development loans on a scheme designed towards forcing Councils to identify sites which can be made available to individuals and custom builders almost immediately.

Prior to, and due to, the downturn, many smaller house builders had pulled out of the market. In 1988 over two thirds of all new homes were constructed by developers with an annual output of fewer than 500 units. By 2012 that was down to less than one third. This fundamental market shift was arguably in part caused by larger builders creating land banks through buying or acquiring options on available sites, a tactic which smaller scale builders did not have the resources to compete with.

Schemes like this £150m fund, and an announcement that the Government is also looking to extend Help to Buy to smaller scale and custom build projects, could help reverse this trend. In particular, extending Help to Buy would free up finance for smaller projects; removing the highest risk 20% from the bank's investment.

Also in the Chancellor's speech, it was announced that he would be publishing a prospectus in the next month setting out how Local Authorities could, should they so choose, consider creating new Garden Cities. This is following on from the weekend's announcement about Ebbsfleet in Kent.

Inheritance Tax and Property

The Chancellor's announcement that emergency services workers killed in the course of duty will be exempt from inheritance tax is a welcome and responsible tweak to the inheritance tax system.

This does, however, draw attention to the figures released by the Office for Budget Responsibility suggesting that almost 11% a year more estates are dragged into an inheritance tax liability due to creeping above the inheritance tax threshold. That threshold is still frozen until the end of 2017/18 at £325,000, but rising property prices have consistently expanded households affected by this bracket.

The tax, which was once the preserve of the rich, previously affected 1 in 20 estates. Estimates indicate that by 2018/19, it is due to affect around 1 in 10 estates.

Of course, the largest part of most families' estate is their house and the undoubted medium and long-term growth in house prices over the last 20 years has resulted in inheritance tax becoming almost a stealth tax on the upper middle classes. With house prices set to continue their upward trend, more and more of the middle classes are destined to become subject to the substantial levy