Stamp Duty Changes Signal Slump for Pricey Properties

The Chancellor George Osborne has confirmed plans for a 7% Stamp Duty on properties purchased for over £2m while at the same time, he announced that the coalition government was planning a crackdown on methods employed to avoid Stamp Duty payments.

At first glance, it would appear that the higher level of duty applies to such a small proportion of property buyers that it isn’t anything to be concerned about but the clear aim behind the Chancellor’s statement is to have the brunt of Stamp Duty carried by those who can afford to buy homes at this level.

“It is fair when money is tight, and so many families could do with help, that those buying the most expensive homes contribute more,” Mr Osborne said.

He went on to confirm the plans will be put in place to stop the rise in practises used to avoid higher rates of duty. A popular method was to negotiate a lower sale figure before pushing up the price via the purchase of ‘chattels.’ Additionally, some properties over the £2m mark were being purchased via a limited liability company before selling on to an individual. The Chancellor announced that any properties bought through a company would now be subject to a 15% Stamp Duty charge.

While it may be fair to say that the number of buyers able to afford such properties represents a small percentage of the UK public, the figures involved in such sales are obviously significant and aid the property market as a whole. What effect therefore will this higher rate of duty have over time?

Figures released last week by the Land Registry are suggesting that sales of £2m plus properties are already tumbling. The figures confirm that in December 2011, 103 such properties were sold across the UK and that represented a fall of 18% from the same month in 2010.

These statistics were of course, produced for a period prior to the increase in Stamp Duty so could we expect falls of even greater percentages?

Property experts have been slow to comment on the Land Registry findings but there is concern that another element of the Budget will have a severe effect on sales to Overseas Property Investors. From April 2013, those investors will have to pay Capital Gains Tax.

“This can only make the UK less attractive to overseas investors,” said Toby Ryland of accountants Blick Rotherberg.

These are tough measures indeed but how much effect will they have on the overall property market?

House Market Showing Bouyancy

While the underlying trend for the housing market is one of uncertainty, the Council of Mortgage Lenders (CML) have suggested this week that there are some positive signs as property experts search for the merest hint of a potential recovery.

The claims come as the CML confirm that gross mortgage lending for February stood at £10.7bn and while this was virtually unchanged from the previous month’s figures, it still represented an increase of some 14% from this time last year.

This was the seventh time in a row that month on month lending had increased compared to 2011 and CML’s chief economist Bob Pannell was positive about the findings.

“Property sales remain fundamentally weak, but have shown strong year-on-year increases since the closing months of 2011,” said Mr Pannell.

“Allowing for the seasonal factors that depress activity over the winter months, the underlying picture for house purchase activity continues to show some buoyancy.”

Economists have been quick to point out that the February figures are still some way below those of last summer but this is a view that underestimates the power of the weather as a factor in buying activity. Seasonal increases have been shown year after year as buyers begin to stir as soon as summer starts to roll in.

A further reason for the fact that lending is increasing in 2012 seems to be the Stamp Duty holiday which is getting the credit for much of the figures currently released in the property market. At present, the charge of 1% is waived for property purchases up to £250,000 but that window is due to close in the next few days.

“We expect the number of first-time buyers to drop back after March as would-be buyers adopt a wait and see attitude,” said Mark Harris, of mortgage broker SPF Private Clients.

Mr Harris went on to suggest that despite the CML’s claims of ‘buoyancy’, the overall picture was essentially one of a depressed market that was firmly anchored in a period of uncertainty.

“Weak consumer confidence and a shortage of homes coming to market are set to continue, although we do not expect interest rates to rise for three to five years, which will support the market to an extent. Mortgage rates, however, will continue to rise on the back of higher funding costs,” he added.

Looking at the two sets of quotes it almost seems if the CML are desperately willing them to spark a feeling of positivity with economists. However, Mark Harris’ view is a commonly held one and a further gloomy outlook could be triggered by the imminent closing of the Stamp Duty Holiday.

First Positive Signs for 2012 Property

Now that the wave of predictions for the 2012 property market has died down, the first batch of actual figures are being released with some positive signs for the year ahead. Reports released this week indicate that the asking price for new properties released on to the market actually grew by 1.4%

Perhaps more significantly, there was an increase in potential buyer activity too with 27 per cent more internet searches performed than at the same time in 2011. While a figure of 1.4% in prices may not be enough to get too many experts excited, the 27% search increase is an impressive rise and may just lead to a more positive start to the year than many have predicted.

Property expert Selwyn Lim is certain that these figures are a positive indicator for the months ahead,

“Since the internet began, more people have been searching online and that trend is continuing,” Lim said. Nevertheless, I am sure some of it is a growth in people searching for property in general.”

Mr Lim did however warn that while these figures were welcome in a period where the forecast is generally a gloomy one, the market should guard against what he referred to as ‘excessive optimism’.

One of the problems with regards to moving the market forward is the continuing issues that new buyers have in obtaining a mortgage. The predictions that were produced at the end of 2011 hinted that this situation could be set to get worse as criteria tightens and the ever decreasing window for sub-prime lending continues to close.

Meanwhile, some property experts have been highlighting the value of hybrid mortgages this week while suggesting that they could increase in popularity during 2012. A hybrid mortgage starts its life as a tracker before ending as a fixed rate, thereby giving the borrower the ‘best of both worlds’ according to its supporters.

Catherine Hearnden, director at MyMortgageDirect said that a mortgage of this kind could be a perfect solution for any borrower who is undecided over which path to take.

“People are not keen on fixing now because rates are low and everyone has got it in their head that rates will increase. You have got the benefit now of a tracker, but you know that your rate will not increase between years three to five,” she said.

Hearnden also went on to say that many are unaware of the hybrid’s existence.

“It is quite a new thing, so I shouldn’t imagine that people do know they are out there. Certainly when we ever talk to anyone about them, it is not something that they were expecting,” she added.

A hybrid mortgage may not help those that are struggling to get funds in the first place but they could be a solution to help convert the increase in property searches into confirmed sales.

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New Figures Show Mortgage Lending Growth

Figures released this week show that mortgage lending grew in November 2011 and while the news tends to contradict some of the gloomy forecasts for the 2012 property market, it is being met with considerable and predictable caution.

The figures from the Council of Mortgage Lenders show that lending rose by 4% from the previous month with the number of loans made increasing to 47,000. This also represented a rise of 3% on the figures from November 2010.

The CML welcomed the news amidst claims that mortgage lending restrictions were going to increase but figures are still running at around half of the levels experienced prior to the banking crisis of 2007.

“A rise in mortgage lending towards the end of 2011 is a welcome indicator for the industry considering confidence has been weak due to fragile economies both at home and in the Eurozone,” said the CML’s director general Paul Smee.

Smee goes on to say that he expects further rises from now until March when the government’s stamp duty exemption ends. Up until then, buyers will not have to pay the 1% charge on properties costing less than £250,000.

“We should expect a further increase in first-time buyer activity over the next few months as they push through their purchases to take advantage of the stamp duty concession before it ends in March,” Smee added.

Does that mean however that the mortgage lending figures are in any way artificial? The CML went on to add that of the 47,000 home loans for that month, 17,300 were taken out by first time buyers which represented an increase of around 4% from the previous month. Of that figure, it’s not been confirmed how many would have been for house purchases under £250,000 but it’s likely to have been a significant proportion.

The Council did confirm that lending to first time buyers had been steady since 2007 with them contributing to between 34% and 40% of overall purchases. That would suggest that with a constant level of first time buyers, mortgage lending figures aren’t necessarily over-inflated but a further spokesman for the CML warned of a slump once the stamp duty concession ends.

“If we look back at the figures from last year, first-time buyer activity tumbled in the first couple of months of the year. That is likely to happen after the Stamp Duty relief ends in March,” the spokesman concluded.

Shapps Targets Housing Fraud

Housing minister Grant Shapps has been in the news this week with regard to a number of issues affecting the housing market and he has vowed to ‘build the homes that the country needs’ during his tenure.

Shapps also hinted at a crackdown on social housing fraud and pointed at the abuse of the system by some buy to let landlords. The MP for Welwyn and Hatfield underlined the problems faced as suggestions have emerged that the subletting of council properties could soon be a criminal offence. With no restrictions currently in place, some social housing tenants are simply moving out and subletting their homes.

“For too long this country has turned a blind eye on the multibillion-pound problem of housing tenancy fraud and abuse,” Shapps said in the Sunday Telegraph.

“Why is it so easy to get away with subletting your council house at market rent and simply pocketing up to £1,000 a week at taxpayers’ expense?”

Shapps promised an end to the abuse and went on to claim that high earners will soon be forced out of their council homes and on to the open market.

“This year the coalition is determined to end that scandal. Why should someone on a six-figure income enjoy a fantastically subsidised council rent, whilst those in real need languish on the waiting list?”

Pushing those high earners out in to the housing market may be seen as a logical move but with new builds and mortgages becoming increasingly hard to find, how does Shapps intend to address that particular issue?

Writing in his column for 24housing magazine, the minister announced several measures that he hopes will get Britain building again while offering hope for those that are struggling to secure the lending that will get them into home ownership in the first place.

“At the heart of the Strategy is a new-build indemnity scheme, which will offer a useful alternative to the Bank of Mum and Dad for those people struggling to get deposits together and take a step on the housing ladder,” Shapps wrote.

“Due to be launched this Spring, under this new industry-led scheme house builders and we in Government will provide security for the loan, enabling homebuyers to secure mortgages on newly-built homes with just a five per cent deposit”

Shapps also announced right to buy measures which could tempt those would be sub-letters to buy their home in the first instance.

“Shortly I’ll also publish plans to increase the average Right to Buy discount to up to half the value of the home, bringing home ownership more within reach of social housing tenants,” he added.

It’s clear from Grant Shapps’ comments that the social housing sector could have more impact on the overall market than many might think and these measures should help those with higher incomes who face the prospect of being forced out of their property.

Record Number Reducing Property Asking Price

Those with a property on the market right now might find they have to bite the bullet and reduce the asking price to make a sale.  Before you start knocking thousands off of the price of your home, work out how much you can afford to reduce the price by first.  Take into account your moving costs including conveyancing, estate agent fees and stamp duty.  You also need to include removal company costs, temporary storage if required, the cost of temporary homing for pets and many other costs that people forget to include.  If you are lucky you may still come out making a profit.

According to research conducted by Zoopla, the average price reduction of a property in the UK has reached a new high and currently stands at £19,500.  More than 40% of properties currently for same have had their asking price discounted at least once and that figure is growing.

Of the properties that have had a reduction the average discount stands at 7.4% which represents a reduction of almost £3 billion off the initial asking price.  Sellers are becoming more and more realistic and more desperate to move before the year comes to a close.

Prices have been reduced the most in Glasgow (9.1%), followed by Newcastle (8.9%) and Bolton (8.8%).

Even those more resilient markets in London have not escaped the great price crash.  32.6% of available properties in the capital have had their asking prices reduced.  However the average reduction in London is smaller at 6.43%.

Nicholas Leeming, business development director of Zoopla.co.uk, said:

“With the current economic uncertainty and difficulty buyers face in finding funding, it is no wonder that sellers are having to reduce prices in order to encourage sales. And with the latest economic forecasts for 2012 looking decidedly gloomy, sellers may have to reduce their expectations further if they are serious about making a move.”

Of course, reducing the asking price is nothing new and nothing to necessarily be panicked by.  Even when the economy is booming many have had to reduce their prices in order to make a sale.  It all comes down to how desperate you are to move and how low you can afford and are prepared to go.  Reducing the asking price and then finding you won’t have enough money to move after all can be avoided by doing your homework, finding a good mortgage deal and ensuring you have enough money to cover your moving costs.

Housing market “lacking direction” according to the Halifax

Mortgage lender Halifax have reported that the property market continues to lack any direction following a second successive month of lower prices today.

Last month’s decline of 0.5% followed a fall of 1.1% in August, although Halifax said average prices in the quarter to September were still 0.1% higher than the previous three months – the first such rise since early 2010.

Halifax housing economist Martin Ellis said September’s drop continued the mixed monthly picture so far this year with four rises, four falls and one month of no change in prices.

He added: “This mixed pattern is consistent with a market where prices are lacking genuine direction.”

The average UK house price in September was 1% lower than in December 2010 on a seasonally adjusted basis, at £161,132.

Mr Ellis said the financial uncertainty was likely to be constraining demand but added that low interest rates and a rise in employment over the last year have been supporting the market.

“We expect little change over the remainder of this year,” he added.

Typical mortgage payments for a new borrower have fallen from a peak of 48% of average disposable earnings in mid 2007 to 26% in the most recent quarter. This is well below the average of 37% over the past 25 years and the lowest since 1997, the lender added.

This week, price comparison website Money Supermarket said the average fixed two-year mortgage deal of 3.82% was the lowest since it began compiling records in 2007, down from 4.01% in August.

The latest drive downwards saw Leeds Building Society launch its lowest ever two-year fixed-rate mortgage with a rate of 1.99%.

Gazanging – The New Threat to the Housing Market

Now, you’ve probably heard of gazumping and gazundering, but a new kid is in town that is threatening to damage the property market: gazanging.  This phenomenon is caused by a volatile housing market, and the lack of available property, and involves sellers pulling out at the last minute.  Notice we said ‘sellers’ there and not buyers.

Research from the legal property website In-Deed has found that over 54,000 homebuyers faced gazanging in the first half of 2011 because vendors changed their mind and decided they didn’t want to sell after all.  The website, also reported that the incidence of sellers pulling the rug from under buyers’ feet had risen by 20% in the first half of 2011 and was more likely to affect homebuyers than gazundering or gazumping.

Gazanging can have a huge effect on a property chain depending on which stage the gazanging happens.  Let’s say a seller pulls out just before exchange of contracts.  That’s a lot of money that everyone has paid out on surveys, conveyancing costs and other expenses.  An under-supply of suitable homes and an unstable property market are the most common drivers of gazanging with many sellers blaming ‘cold feet’ as their reason for staying put.

Figures released by the National Housing Federation (NHF) aren’t too promising and show just 105,000 homes were built in England between 2010 and 2011 – this is the lowest level in almost 100 years.  House sales also dropped to a two-year low in August according to the Royal Institute of Chartered Surveyors who also claimed that buyers were avoiding buying property due to a fear of falling house prices in the future.

Harry Hill, founder of Rightmove and former chief executive of Countrywide estate agents, said: “What we’re seeing at the moment is uncertainty in the housing market and poor consumer confidence giving sellers cold feet. Buyers can’t do much about the economy, but regardless of the state of the market, poor property legals continue to compound such problems, though this is easily avoided.”

There are no laws regarding gazanging and you could find yourself on the receiving end of a seller pulling out, but the good news is that this is unlikely once you have exchanged contracts.  If you have reached this stage when buying your new home then the seller will be liable to quite expensive fines and to pay compensation to you if they decided they don’t want to move after all.  If you are thinking of selling your home, think before you put that For Sale sign up.  Do you really want to move?  Can you afford to move?  Asking yourself these questions now will save a lot of stress and heartache for yourself and others later.

One Fifth of Kids Expect to Own Their Dream Home by 25

Remember when you were young and adults asked you what you wanted to be?  Perhaps your answer was a fireman, or maybe an astronaut.  I don’t actually remember anybody asking me when I thought I would own my dream home, or even knowing what my dream home was!  Had I been asked, I probably would have wanted some kind of Barbie’s caravan and Millennium Falcon fusion home!

It seems that many children across the UK have a very optimistic view of when they will become homeowners.  The research carried out by Clydesdale and Yorkshire, found that 19% of children questions believed they would own their dream home by the age of 25.

The research also revealed that 68% of children of primary school age expected to own their dream home by the age of 35 even though 33% thought their dream home would cost them between £500,000 and £1m.  Hey, it’s good to have ambition!

It seems that children in Yorkshire have the brightest outlook with 38% aspiring to own their dream home by the time they turn 25 and 83% by the age of 35.

Steve Reid, retail director for Clydesdale Bank, said: “As any parent knows, children can be very ambitious and it is always refreshing to hear about their hopes and dreams, however optimistic they may be.

“With 59% of kids hoping for a swimming pool and 25% wanting their own private theme park within the grounds, it is unsurprising that over a third of children think that their dream home will set them back in excess of £500,000.”

The study also revealed how 71% of children believe they will earn anything up to £100 a week in their first paid job and 22% thinking they will only earn £10 a week which would mean it would take them over 100 years to save up a deposit for that dream home costing £500,000!

The UK Towns Forced to Drop Asking Prices

According to new research released by Zoopla, more and more house sellers are being forced to drop their asking prices by 7.1% or £18,500 on average. Good news for first-time buyers, not so good if you are selling a property.

2 out of 5 (38.6%) of all properties currently for sale in Britain have had their asking prices decreased at least once since being put up for sale.  This figure has risen from 37% 3 months ago and is well ahead of last year’s figure of 32%.

Even properties in a more resilient market have been subjected to reduced asking prices.  Our of all 1m+ properties currently on the market, 27% have had their asking price dropped at least once.  This figure is up from 25% only 3 months ago and again, the figure is higher than the 22% reported this time last year.

The hardest hit area was the North with sellers in the Bolton area experiencing the biggest reductions.  Many were forced to drop their asking price by 8.6% on average.

Newcastle-upon-Tyne (8.2%) and Glasgow (8.2%) also experienced significant drops, with Liverpool close behind.

Equally, the South-East hasn’t escaped harm, but has experienced less reductions.  Properties in Chelmsford (5.5%), for example, had the lowest average price reductions.  London (6.3%) and Croydon (5.6%) also suffered.

London has the lowest selection of reduced-price properties in the UK (32.4%) and this shows its relative detachment from the rest of the housing market.  Stockport experienced almost half (47.8%) of all homes for sale have had their prices reduced since being put up for sale, closely followed by Chesterfield (45.8%) and Huddersfield (46.3%).

Nicholas Leeming, business development director of Zoopla.co.uk, said: “Vendors continue to have to lower prices due to weak buyer demand. Sluggish economic growth has hit buyer confidence and tight-fisted lenders are currently making it impossible for swathes of would-be buyers to benefit from the price reductions.

“For those who can get mortgages, now is as good a time as there has been in over a year to bag a property bargain.”