SPECIAL FEATURE: The housing market in 2016
Steve Goodall, managing director of Legal & General Surveying Services, reviews what’s in store for UK housing over the next 12 months.
For many years now we have become accustomed to the supply side of the mortgage industry having as great an impact on lending as the demand side.
Regulatory scrutiny and fiscal policies drive a lot of financial services sales activity. Funding aside (another supply side function) this impetus, with the recent arrival of the European Mortgage Credit Directive, the recalibration of the buy-to-let market, and the results of the Finacnail Conduct Authority’s ‘could do better’ thematic review of the mortgage market, mean this trend shows no sign of abating.
While publicly many expect transaction levels to pick up modestly there are many reasons to expect 2016 will be much as 2015 but with a few extra challenges owing to the Chancellor’s withdrawal of tax relief and increase in Stamp Duty for buy-to-let.
This curtailing of the market will have many new and existing lenders reconsidering their volumes and strategies for the coming year. We may see a fillip to the market as the changes in stamp duty for buy-to-let and second homes could bring about a relatively busy period in Q1 perhaps followed by a drop in activity if some investors decide a swift exit from the market is desirable.
But possibly the impact will be felt more immediately by brokers who have built successful businesses around buy-to-let.
Even if investment properties do come on the market, they will be exposed to a difficult market and will need general insurance business and residential lending to smooth out any bumps.
Nor will we be able to rely on a steady stream of interest rate rises to bolster the remortgage business. At best one rate rise might be in order mid-year and this might follow a cut if we, as a nation, decide to leave the EU.
Britain needs to build new homes but for now the restricted supply, combined with the falling stock of homes available for sale, is likely to ensure that house price growth remains strong even if affordability issues mean transaction numbers suffer.
PWC estimates that if the supply of new homes continues to be relatively sluggish, house prices are expected to keep growing at around 5% for the rest of this decade meaning the average UK house could be worth around £360,000 in cash terms by 2020.
Another quietly growing trend in tenure that impacts transaction numbers is the growth of our ageing population.
A greater number of people than ever before own their own home outright. This now accounts for 32% of the total and is expected to rise to 10.6 million households, 35% of the total, by 2025.
This is the new normal of housing transaction volumes. Lending volumes may grow because of uplifts in values, but not because of growth in the numbers of transactions.
The shortage of the right type of housing, (mid-range family homes as opposed to trophy homes), is making problems more acute.
With so much of the nation’s perceived wealth wrapped up in our property it remains to be seen whether our political masters really have the will to deal with it.