Brace yourself for some seismic events
I have noticed that each one of the last few years has come with its own natural gear change, as a defining moment which splits the year into two parts: what happened in the months leading up to the event; and what happened afterwards? In 2014, for instance, it was the regulatory catalyst generated by the introduction of the MMR in May that year; in 2015, of course, it was May’s General Election.
This year, we have our potentially seismic events rather earlier and, bucking the trend, we don’t just have one of them but multiple factors. 2016, in the space of just a few weeks, will see both the introduction of the Mortgage Credit Directive (MCD) and the changes to stamp duty charges for those buying additional properties on 1 April. And let’s not forget the recently announced EU Referendum taking place in June. It’s perhaps not surprising there is a sense of the unknown about the market.
However, the potential changes which will affect the mortgage market and all stakeholders don’t just end there, indeed we could have more to contend with if the Chancellor George Osborne decides to use his 16 March Budget to announce further housing and property market-related changes. How might this affect a market which already has a significant amount of uncertainty to deal with? In fact, what could those possible changes be and how might they play out?
Well firstly, even with the changes to stamp duty on additional properties due to be introduced on 1 April, we are still in the dark about the detail. Who will remain exempt from the extra 3% charges? At the time of the announcement the government’s onus appeared to be on taking the corporate purchasers out of the equation. But, judging by the consultation paper, this may be extended to individual landlords who have a certain number of properties, or are willing to purchase a certain number. As you’ll know, the belief was this would be arbitrarily set at 15 – now we’re not so sure.
On top of this, there has been some significant lobbying amongst the property market fraternity to attempt to water down these proposals, and ideally get rid of them altogether. This is highly unlikely but we may see more exemptions being made, perhaps in the area of divorced and separated homeowners, or in terms of parents being on the deeds of their children’s properties but not actually paying the mortgage.
Detail on these stamp duty changes might not be the only focus for the Chancellor – it’s not impossible that he will look again at the stamp duty thresholds themselves, particularly at the upper levels. Research by LonRes at the end of last year revealed that sales of more expensive homes had dropped sharply since the increase in stamp duty for homes at that level. In London for instance, it found that sales of homes between £1 and £2m fell 22.5% from July to September last year, compared to the same period in 2014. Across the UK, Lloyds Bank research showed that sales of properties over £1m had fallen by 11% in the first half of 2015.
There’s no doubting that this will have led to a fall in stamp duty revenue from this part of the market – indeed, just this month, Knight Frank suggested it had fallen by 12.1% since the introduction of the new system. Coupled with a decline in property transactions, it believes the Treasury would have been out of pocket by some £620m between January and October last year. There is even some suggestion that this sizeable fall in stamp duty revenue will have a considerable impact on Osborne’s ability to balance the books and to meet his targets for bringing down the deficit.That being the case, perhaps the Chancellor may well look to tweak the stamp duty system again – cutting the costs of stamp duty at the higher end in order to incentivise those who might wish to purchase in those price brackets.
Overall, however, I suspect any further housing-related focus from the Chancellor will continue to be on increasing supply. It is still, by far, the biggest problem, underpinning the entire sector and requiring constant attention if we are to see any improvement. The recent Help to Buy London launch may deliver more homes in the Capital, but no-one expects it to meet the needs of all those Londoners who want to own their own, affordable home. Across the rest of the country the dynamic is just the same, so we may see further investment in delivering on the numbers required. It would also be positive to hear how the Government intends to replace Help to Buy 2 which finishes at the end of this year, the loss of which could result in a significant drop-off in high LTV mortgage availability.
These questions, and many others, remain unanswered and alongside with all the other market changes, March promises to be a rather interesting month. Though perhaps not as interesting as the months that will follow, when we’ll get the first tangible idea of how consumers, borrowers, advisers, lenders and the rest of the mortgage/property fraternity are reacting to the new environment.
Rob Clifford is group commercial director at the SDL Group which is a shareholder at CENTURY 21 UK, MoneyQuest and Stonebridge Group