Will 2016 See a More Balanced Recovery?
New Year, new challenges – and opportunities
Risks and opportunities in 2016.
|Click to download as PDF|
There is a raft of new things to deal with in 2016 all creating risks and opportunities in the housing markets. Economic conditions are hugely important and we have seen the pace of economic growth pick up – and then wane in 2015 as the UK struggles to get a more balanced recovery. The global economy can’t be ignored – uncertainty in China led the Chancellor to talk of nasty cocktails of events which could derail the UK recovery in 2016. And then there is the Brexit debate – will Britain leave the EU and will that mean more austerity but with higher interest rates?
The answers will become clear in due course, but it’s not all gloomy. There is more government policy aimed at housebuilding with new housing zones dotted across the country; the extension of Help to Buy including the very generous 40 per cent deposit London Help to Buy scheme, which should all help to stimulate activity.
Higher Interest Rates are Not Such a Threat to Owners
Even without Brexit interest rates are expected to increase towards the end of the year, but it’s unlikely to cause many problems in the housing market. There are few signs of mortgage distress and more than half of owners won’t be affected by rate changes because they either own outright or are on a fixed rate loan. The market won’t be derailed by floods of distressed sales.
And even when rates do rise the likelihood is they will do so very slowly and won’t go above three per cent. Even allowing for a widening of mortgage margins that keeps mortgage rates low by historical standards and keeps opportunities alive for new transactions.
But What About the Buy-To-Let and Investor Market?
Buy-to-let lending has been supporting the market while movers have been absent since 2008. In Q3 2015 lending to investors was up 10 per cent compared with just a 0.4 per cent increase in lending to owners. That shouldn’t be a surprise – returns on property have been better than other investments on rental yield alone. But with expected capital growth in the equation, potential returns have been much higher.
The addition of a 3 per cent stamp duty surcharge reduces the yield, but it’s still above returns on other safe assets so it’s not clear that this alone will dissuade new entry. Choices are more likely to be affected by expectations of future price growth and the availability of the extra cash up front.
The effect on yields is spread geographically due to differences in house prices. But even in London, where prices and hence the stamp duty bills are highest and yields are affected most, that doesn’t mean that demand will collapse.
Indeed it presents opportunities for other buyers. Help to Buy London will support demand for new property and with London’s economy and its house prices so far ahead of other parts of the country, there is still lots of demand for rental homes, making it an attractive income generating asset.
So, while there are risks ahead, some might not be as big as first thought and where there are risks there are always opportunities.
|Click to enlarge.|
|Click to enlarge.|
|< < Previous Page||
|Next Page > >|