When the Chancellor announced a significant change to stamp duty for second home owners it became obvious there would be a rush to close deals before the cut-off point of 1 April 2016. Those who exchanged contracts on properties before 25 November 2015 will not pay the higher stamp duty (a 3% surcharge) even if the properties are not ready until after the 1 April 2016. However, those who exchanged contracts on or after 25 November 2015 will have to pay the additional surcharge if the homes in question are not ready before 1 April.
In yet another blow for the UK property market this additional stamp duty surcharge will inevitably see interest in real estate reduce from the 1 April 2016 cut-off point.
Short-term price rises
The impact of the stamp duty increase across England and Wales has already had an impact upon demand from second homeowners. We saw an increase in property prices in the region 3.7% during November which contributed to a 13.4% annual rise. When you bear in mind that November has always been a relatively quiet month as we approach the end of the year and the festive holidays, this increase of 3.7% was impressive. It will be interesting to see how December faired although there may be some pressure off the market after the 25 November cut-off date.
In many ways the introduction of a new stamp duty surcharge for second home owners has created something of a “false market”. It is inevitable that we will see further demand in the early part of 2016 and then this could “fall off a cliff” once the stamp duty change kicks in.
When you consider first-time buyers are few and far between at this moment in time those that are able to afford their first property will be fighting against buy to let investors. This comes at a time when UK base rates are under even more focus after the recent increase in US rates. Many experts have already pencilled in an increase in UK base rates before the end of 2016 with a growing suspicion it could be sooner rather than later. This will obviously have a significant impact upon the UK mortgage market hence the reason why some first-time buyers are looking to conclude deals sooner rather than later.
Even though demand from buy to let investors is expected to reduce significantly from the end of March we may then see a situation where UK mortgage rates will gradually move higher in expectation of UK base rate movement. So, many investors will be looking to conclude deals in the early part of 2016 for different reasons.
When you think about the momentum which the UK property market is feeling at the moment it is difficult to see how this can continue throughout 2016. Even though the UK economy is performing admirably, as is the UK property market, there are still potential issues overseas which could impact the UK in 2016. Even though the European economy has shown signs of stabilising the future of the euro is still very much under scrutiny and we also have the UK EU referendum on the horizon.
Many experts believe that 2016 will be a “rocky” period for the UK property market although it is difficult to say with any real confidence what direction it will take.