In this month’s bumper Property Market News Round-Up, we take a look at property sales and price trends, the extension of the Help to Buy Scheme in 2016, the planned supplement on Land and Buildings Transaction Tax for buy-to-let investors and second-home buyers as well as the prospects of interest rate rises in 2016.
Property Sales Remain Strong
As we head towards the end of the first month of 2016, property sales across Edinburgh and the Lothians have remained strong. Throughout 2015, the number of homes changing hands was at its highest level since the onset of the ‘credit crunch’ in 2008. Buyer activity has remained strong early in 2016. MOV8’s sales in January are already up by 13% on the total for the month last year with a week still to go.
The latest figures released by ESPC show that the percentage of sales achieving or exceeding their Home Report valuation rose from 48.6% during the fourth quarter of 2014 to 59.5% in 2015.
House Prices Continue to Inch Upward
Continuing the trend that we have experienced throughout 2015, house prices are inching north, with an annual increase of 4.9% across east central Scotland in the period from October to December 2015. In Edinburgh itself, the average property price during this same period rose by 7.1% annually, from £211,776 in 2014 to £226,731 in 2015 according to the latest figures released by the ESPC.
There are sections of the market where prices are rising more quickly than the average. For example, one bedroom flats in the Polwarth, Shandon and Tollcross areas of Edinburgh have seen an increase of 27.6% from £127,768 to £163,016, year-on-year, as these areas become increasingly popular with First Time Buyers.
Caution, as always, must be exercised when looking at these sorts of statistics as the types and sizes of one-bedroom flats do vary and it is possible that there has been an increase in the proportion of sales of larger one-bedroom flats, for example, in these areas. Nevertheless, these statistics make very positive reading for anyone who is thinking of selling a property of this type in these areas.
Help to Buy Scheme Extended
The Scottish Government announced this month that the three-year, £195 million ‘Help to Buy Scheme’ will help thousands of lower income households to purchase a new build home, with applications for the scheme opening 1 March 2016.
The Scottish Government has also announced £160 million in new funding to support its Help to Buy home ownership schemes in the next financial year, which starts in April 2016.
The ‘Scottish Government Help to Buy (Scotland): Affordable Home Ownership Scheme’ will be available to help approximately 3,000 households next year, with around £80 million in equity support being made available. An additional £80 million will be allocated to the Open Market Shared Equity Scheme (OMSE) which will help an additional 2,000 eligible first time buyers on lower incomes on to the property ladder.
Land and Building Transaction Tax (LBTT) Supplement for Buy-to-Let
The Scottish Government, on 16 December 2015, announced a change in Land and Building Transaction Tax (LBTT) for Buy-to-Let investors and people buying a second home.
Scotland’s Finance Secretary, John Swinney, announced that there will be an additional supplement of 3% of the purchase price of the property, on top of the existing LBTT that would be charged for non-buy to let investors and people who are not buying a second home. This new tax supplement on LBTT will apply to anyone purchasing an additional property for £40,000 or more. The announcement echoes a statement by the UK’s Chancellor of the Exchequer, George Osborne, in November 2015 that applied to the rest of the UK.
This means that properties that are currently exempt from LBTT, due to their purchase price being under £145,000, will be subject to the new tax of 3% of the total purchase price for these categories of buyers.
According to the Scottish Fiscal Commission, the official watchdog of the Scottish Government’s plans on tax and spending, the additional levy is likely to affect 8,500 to 12,500 property purchase transactions each year.
The Scottish Fiscal Commission also warned that it is hard to forecast the impact of such a levy as transactions may be brought forward to the current financial year to avoid the new tax, with Mr Swinney currently looking at bringing forward legislation on the new tax so that it can be in force on 1 April 2016 for the start of the new tax year. At MOV8 we have already seen a sharp rise in the number of purchases of properties under £150,000, and feedback from our negotiators and financial advisers suggests that many investors are looking to bring their purchases forward.
The difficulty for property buyers and sellers at the moment is that there is sparse detail about exactly how this scheme will operate. For example, would someone buying a second property with a view to renovating it whilst remaining in their existing home until the renovation is complete have to pay this additional LBTT supplement on the purchase price? It seems that, in this situation, the buyer would not have to pay the additional LBTT supplement on the purchase of that second home. However, were you subsequently to decide to rent-out the original property after moving-into the newly-renovated property, the guidance becomes slightly more ‘wooly’.
With the additional tax applying to purchases with a ‘settlement’, ‘completion’ or ‘Date of Entry’ date on or after 1 April 2016, there isn’t a long time until this comes into force! It is probably best to err on the side of caution at the moment, if you are a property buyer, and to assume the worst when it comes to whether tax will apply to your second home or investment purchase.
Interest Rates Remain Unchanged
This month, the Bank of England’s Monetary Policy Committee (MPC) voted, once again, eight-to-one in favour of keeping the Bank Rate (commonly referred to as ‘The Bank of England Base Rate’) at 0.5%. This rate has now stood at this historically low level for over six years as the Bank has tried to encourage consumer spending to stimulate economic activity. In his first speech of 2016, the Bank of England Governor Mark Carney said that ‘now is not yet the time to raise interest rates.’ Mr Carney stated that collapsing oil prices, lingering low inflation, slowing UK growth and an overall ‘weaker’ global economy meant that the MPC was in no hurry to follow America in an interest rate rise, the latter having raised interest rates in December 2015.
Experts are now predicting that interest rate rises might be further away than originally predicted. Global economics organisation IHS Global Insight’s Chief Economist Howard Archer has intimated that the MPC is very much adopting a ‘wait and see’ approach, saying, ‘This is clearly a dovish speech by the Governor, and it can only fuel belief that the Bank of England will not be raising interest rates before late-2016, and could delay acting until 2017.’ Mr Archer also explained that they predict if there was an increase before 2017 that this would be a small increase of 0.25%, pencilled in for August, but that even this now seems questionable.
It remains to be seen whether these experts are right, but the longer that interest rates and therefore mortgage rates remain at historically low levels, the longer the housing market will benefit from increased affordability of mortgage finance, and therefore of housing, for property buyers in the UK.
As ever, if you’re thinking of buying or selling a property or if you have any questions, please do feel free to get in touch with our property experts today on 0345 646 0208 or [email protected] and one of our team will be delighted to help you.
Dear Jamie, I do find your monthly updates valuable. This summary matches exactly what we have been seeing as we negotiate to purchase a small Edinburgh flat. As you suggest, many pension-holders are looking to invest lump sums in property and the new stamp duty hike is creating an unforeseen deadline of 1 April. Prices of small flats in Edinburgh are shooting up compared with late last year. Fortunately we have managed to clinch our deal but I suspect others will be paying over the odds in the next couple of months. Perhaps the small flat market will slump after April? Thanks, keep the market intelligence coming!
Thank you for taking the time to comment, I am delighted to hear that you find our articles useful!
You’re absolutely right, the new Land and Building Transaction Tax supplement has likely created a bit more urgency for buyers looking to invest in a second property, it certainly seems like this is the case from the feedback from our negotiators and financial advisers. Great to hear that your purchase is all tied up, congratulations on the new property!
It is tricky to speculate at the moment what will happen in this sector of the market following the 1 April introduction, however we will be posting some further articles about how we are seeing this affect the market in the near future, as we keep a close eye on how things are progressing.
These should hopefully be of interest to you, we will also be continuing with our monthly property news round-up and view of the market as well.
In the meantime however, don’t hesitate to drop me a line if you would like to discuss anything else in this, or any other article.