There is a lot going on in the property market at the moment! In the 15 years I have worked in property, I don’t think I have ever seen so many legal and tax changes and government policy initiatives as we are experiencing at the moment.
Tenants
On the one hand this will be a good year if you are already in rental accommodation. Existing tenants rarely end up seeing rents increase year on year, so end up renting ‘below market rates’ after a few years. However, if you are looking to move, it’s likely you will see local rents rise as fear of increased tax costs means landlords are putting up rents, even for long-term tenants.
According to my monthly rental report, in 2015 rents went up, on average, between 2% and 3.5% which, although above inflation, is actually in line with wage growth. This year I expect they will go up further as the number of new rental properties falls behind the growth in tenants.
As such, it’s worth staying put if you have a decent landlord or a good agent to rent from but, if you are thinking of moving, it might be worth doing this sooner rather than later.
First-time buyers
This is definitely your year. If you are convinced you can’t afford to buy, then it’s worth thinking again. For starters if you think you could never save for a deposit, now is the time to double check all of your expenditure as the government’s Help to Buy ISA means you can save up to £200 a month and, when you come to buy, they will top up your savings by 25%, up to a maximum of £3,000.
Then, after subsidising your deposit savings, the government allows you to buy into Help to Buy and Starter home schemes, these offer you an opportunity to buy a property with up to a 20% discount or loan.
The Help to Buy Scheme allows you to buy a new build with up to a 20% free loan from the government for five years. This allows you to purchase a property with just a 5% deposit, so on properties worth:
£100,000 – you would need a deposit of £5,000 but this can be topped up by 25% if in a Help to Buy ISA, so actually you would only need 75% of £5,000 = £3,750.
£200,000 – you would need a deposit of £10,000 but this can be topped up by 25% if in a Help to Buy ISA, so actually you would need 75% of £10,000 = £7,500. If there are two of you, that would be just £3,250 each.
£300,000 – you would need a deposit of £15,000 but this can be topped up by 25% if in a Help to Buy ISA, so actually you would need 75% of £15,000 = £11,250. If there are two of you, that would be just £5,625 each.
If you are in London, there is a new scheme which is even more generous. This is because the take-up of the national Help to Buy Scheme has been very low in the area due to new build prices typically costing from £250,000 – a lot to pay for your first home.
As a result the new London Help to Buy scheme now offers up to a 40% loan towards the cost of your new build home, requiring you to secure a 55% mortgage and a minimum deposit of 5%.
What’s worth remembering too, is that even if you are opting for shared ownership, which in London you can secure for under £125,000, you can use the money saved and subsided by the government’s Help to Buy ISA scheme.
Investors (including Buy to Let)
This year will be a bit of a tough one for those who had planned to expand their portfolio. Large landlords are likely to do fine as there is plenty of funding and in some cases subsidies available. However, if you are a small landlord, things will get more difficult this year.
First, mortgages will not necessarily be as easy to come by as the Financial Conduct Authority requires some Buy to Let mortgages to be more carefully supervised from March 1st 2016. This won’t be a major hassle as many brokers already dealing with buy to let finance are already regulated, but lender criteria is expected to be stricter for more ‘consumer’ related mortgages, ie money lent to those considered to be “accidental landlords”.
Secondly, of course, there is the impact of the 3% additional stamp duty charge from all completions from 1st April 2016. Although this is not ideal, the additional cost can still be worth paying in areas of good capital growth – and it is tax deductible if you sell.
So the main winners are first-time buyers but for investors and tenants, it’s likely to be a tougher market for 2016.
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