SPECIAL FEATURE: Reasons to be cheerful, part 3
Whereas the property market in 2014 came out of the traps at a sprint at the start of the year and tailed off to a trot, it looks as if it is going to be quite the reverse in 2015 as we approach the traditional spring market.
Compared with the first quarter of 2014, this year has been positively pedestrian, but that is only because last year saw such a frenzy of end-of-recession activity. If we compare the first three months of this year to other preceding years, the market does not look nearly so slow.
We are still not building up a sustainable head of steam. The market is creeping along, rather than going at a rate of knots. Of course, there is still the phenomenon of micro-markets, with localised flurries of activity, but across the board progress is steady rather than exciting.
Just as the market was restrained last year as both buyers and sellers hung back to see what was going to happen in the Scottish independence referendum, it is perfectly possible that hesitancy is again in the air as we approach the UK General Election in May.
In Scotland, there is also – particularly at the higher end of the market – a distorting effect from the Land and Buildings Transactions Tax, which comes into force tomorrow and significantly increases the tax burden on properties at £750,000 and above.
Will it have an effect on the main market? I think not. At the upper end, prices offered will reflect the new tax environment and in the middle and lower ends of the market the new regime will soon be accepted as the norm.
So while the spring market may be slightly delayed by events this year, it is likely that it will eventually take place with all its traditional exuberance and it is also likely that, in a reverse image of last year, we will see strong confidence building towards the end of the year.
This assumes, of course, that there are no unforeseen shocks from abroad, such as the exit of Greece – and perhaps others – from the Eurozone.
It has to be borne in mind that it is no longer simply a UK market, but one which is subject to the slings and arrows of world events.
It is more than likely that there will be a marginal uplift in prices – I would predict in the region of between 3% and 5%, taking out the unrepresentative hotspots of London and Aberdeen. It is my view that the predicted halt to the Aberdeen residential market will be nothing like as severe as suggested in some quarters and it will be more of a minor adjustment that will have little effect on pricing.
I do not believe that there will be an interest rate rise within this year – that is unlikely to happen, I would suggest, until the second or third quarter of 2016, which again is depressing news for savers, of whom there are still a few about.
First-time buyers have been given another nudge towards the sunlit uplands of ownership in George Osborne’s pre-Election Budget, with an Isa in which the Government will add £3000 to £12,000 saved in a tax-free account so long as it is used towards a deposit for a home.
But the fact is that prices have so comprehensively outstripped real incomes that affordability remains a significant problem for many. An extra £3000 will no doubt be very welcome, but it hardly makes a dent in what is required these days for a deposit.
Another of Mr Osborne’s changes, however, may affect the market much more significantly – the decision to allow people to access their pension pots and spend it in whichever way they see fit.
Opponents of this move to “trust people with their own money” say that flighty pensioners will just blow their savings on a Lamborghini but it is far more probable that people approaching pension age will invest in properties for their retirement.
They could buy the ideal property they wish to retire to and rent it out until they are ready to retire while they continue live in the family home.
Alternatively the removal of “tax free” pension funds may help property purchase for dependent children. This would be a way of receiving inheritance early when it is most useful to the recipients. Tax planning around pensions and early removal of funds however is crucial.
So there is much to take into consideration as 2015 progresses and many potential pitfalls along the road. But, all things being equal, there are also many reasons to be cheerful.