Friday, 14 April 2017

Stamp Duty surcharge deadline spikes UK house prices


According to information from the Office for National Statistics (ONS), the average price of UK houses increased by 7.9 percent in January, up from 6.7 percent in December.

The average price for properties purchased by first-time buyers increased 7.7 percent in January, up from 6.4 percent in December.

Second home purchases averaged £340,000 per house while the average price paid for a house by a first-time buyer was £222,000. The overall average UK house price in January was £292,000.

Regionally, however, there are significant differences. In England, for example, house prices rose by 8.6 percent in January, up from 7.3 percent in December, but decreased by 0.3 percent in Wales.

Within England, the south east saw an increase of 11.7 percent, while the north east recorded an increase of just 0.9 percent. London house price was up 10.8 percent. The highest growth rate was recorded in outer metropolitan areas such as Hart and Rushmoor, North Surrey and Bracknell Forest. 

Reason for Price Growth Surge
Although the ONS does not provide any postulate as an explanation for the house price rise, experts suggest it may be as a result of a surge in property investment in anticipation of the extra 3 percent stamp duty land tax expected to be implemented in the coming week.

“The acceleration in growth in the last quarter has, in part, been down to stronger demand from investors, especially those searching for higher yielding property and seeking to beat the stamp duty deadline,” says Richard Donnell, director of research at Hometrack.

This opinion is shared by Robert Gardner, chief economist at Nationwide. According to Gardner, “this temporary boost to demand against a backdrop of continued constrained supply is likely to have exerted upward pressure on prices and helped to lift the pace of annual price growth out of the fairly narrow range of 3 percent to 5 percent that has been prevailing since the summer.”

Figures from HMRevenue and Customs revealed that 161,900 properties were sold in the UK in March, the highest figure for a single month since June 2006.

Increased sales was significant in luxury property. The seaside area of Sandbanks recorded a 21 percent year on year increase in sales.

Buy-to-let mortgage brokers said there was a 100 percent year on year increase in demand in March. It was also reported that mortgage lenders experienced a surge in applications. The Council of Mortgage Lenders revealed that lending increased by 59 percent year on year in March, and 43 percent from February.

According to a report by Telegraph.co.uk, estate agents had to work late through Easter and beyond.
The new stamp duty tax was announced in the Chancellor’s 2015 Autumn Statement Spending Review. But there are suggestions that the eleventh-hour surge in investment might be because the full details and implications of the new tax policy were only made available as recently as a week ago.

“Because the full guidance only came about a week ago there's been a last-minute push. People have been working late, and into the night,” says Samantha Blackburn, head of residential property at Slater and Gordon. 

What is the stamp duty surcharge?
The stamp duty surcharge which takes effect April 1 enforces an extra 3 percent on the stamp duty land tax, on the purchase of second homes or buy-to-let property.

According to the new tax rule, if a home is being bought as a direct replacement of a main residence, the stamp duty surcharge does not apply. But, if a second home buyer is not selling off the existing home, he or she will have to pay the extra tax even if the existing property will be rented out.
Under the new tax policy, only homes under £40, 000, houseboats, caravans and some multiple purchases are excluded from the extra charge.

The extra stamp duty charge means that the stamp duty tax on a £300,000 property would increase from £5,000 to £14,000.

The UK government says that the extra stamp duty tax, with other tax changes, is intended to cool investor interest in buy-to-rent and second home purchases, in order to make it easier for new homeowners to purchase property.
The rationale is that as these interests cool, more property is available in the market, reducing the supply vs demand gap and thereby, reducing UK house price. First-time buyers will therefore find it easier to purchase new homes.

The UK government also plans to use revenue generated from the extra stamp duty charge to provide funds for UK communities where the impact of second homes is most significant. 

Sustainability of the Price Growth
The Royal Institute of Chartered Surveyors (RICS) chief economist, Simon Robinson stated that although he expects UK house price to continue to rise in coming months, it will slow significantly towards the end of the year.

Nationwide’s Gardner explained that the increase in house price growth is temporary and that it may slow again with the implementation of the stamp duty tax. He warned, however, that a stronger economy and dearth in supply may make for a sustained increase in house price over time.
There are also indications that political uncertainties will, and already play a significant role in price growth rates.
“Current increased domestic economic and political uncertainties could also be reining in housing market activity, especially in the run-up to June's EU referendum," says Howard Archer, economist at IHS Global Insight.
RICS reported that since 2015, international investor interest in UK commercial property had slowed significantly in the run up to the June 23 Britain exit referendum.
The RICS report revealed that only 5 percent of the surveyed UK commercial property reported increase in international investor interest.

Global economic situations in major investor countries may also seriously affect UK house prices. China and Russia, which account for a significant portion of UK property investment are experiencing economic difficulty. Investor interest is expected to even further reduce with the extra stamp duty charge.

The sharp rise in UK house prices may be a temporary response to the new stamp duty surcharge. However, it provides a strong indication of the way in which the new government tax policies will influence UK property market forces.


Source Website: The HouseShop