South East: Romans offers 2017 property predictions – bricks, mortar and crystal balls

Having entered 2016 with optimism and all signs pointing at a buoyant market – the outlook was good. Little did the nation know what 2016 actually had in store. From Brexit to tax relief for landlords, Romans gives a run-through of what happened and the effect we’ve seen so far on the local property market.

Stamp Duty surcharge

Originally designed to detract investors, if it worked, it would help stabilise or potentially reduce the costs on smaller properties across the country and in doing so, help to encourage more first-time buyers back into the market as there would be less competition from investors.

In the run up to the surcharge being introduced in April, Romans understandably saw a sharp increase in the number of investors registering with us and then purchasing smaller properties across our local area. As a consequence, there were more properties available to let in that early part of the year than normal which flooded the market – this has now evened out.

Antony Gibson, sales director, explained: “We have seen the proportion of first-time buyers increasing and the NAEA (National Association of Estate Agents) reported that in October a third of all house sales were to first time buyers. I don’t think this is solely down to the surcharge though as there have been other incentives put in place by the Government like Help to Buy and New Buy which are making it easier.”

Michael Cook, lettings managing director, added: “In the first quarter of the year our number of sales to investors spiked at close to 30% and dropped considerably in quarter two as expected. Encouragingly, we saw this recover again in the third quarter, up to 16% which was far closer to the 2015 average of 21%. I believe this renewed interest is down to a lack of alternative investment avenues, coupled with strong medium to long-term forecasts on capital and rental growth, so more people are now considering buy-to-let as a viable option.”

EU referendum

One of the bigger surprises of the year, Brexit, seemed to be more of a shock to our local area than other parts of the country. Locally Romans saw buyer activity slow down as people nervously waited to see if there would be an immediate effect on house prices but as there was not, the number of people looking to move again has been rising steadily since August.

Gibson commented: “Interestingly, although the number of buyers dipped through the summer, we didn’t see an increase in the number of people who pulled out of their sale or purchase, in fact there was a 10% decrease; reassuringly demonstrating that the buyers we had found for our clients properties were not only serious buyers, but also that both buyers and sellers remained un-phased by the result of the referendum.”

Furthermore, since the referendum we have seen the level of properties new to the market increase by 6% versus the same period last year, which shows there is still plenty of confidence and appetite from homeowners to move.

Right to rent

This was linked to immigration and meant that all new tenants had to prove they had the right to live in the country. This made it more important than ever that landlords did everything by the book, adding yet another legislative rule to the forever growing list of compliance matters that must be adhered to. But more importantly, the implications of not abiding by this one were a potential custodial sentence!

Cook said: “We saw a number of landlords moving away from our let only service, where they were responsible for the majority of the legislation applied to the buy-to-let market. Understandably, having an expert looking after all of this for them completely eradicates any risk. We advise our clients that unless they are a professional landlord and dedicate a lot of time to letting out property, they should definitely ensure they have a professional looking after it for them.”

Tax relief cap on landlords (announced)

It was announced that a staged transition from 2017-2021 would move landlords to only receiving a basic rate reduction from their income tax liability, meaning they would no longer be able to deduct finance costs from property income.

Autumn Statement

Property professionals across the country were sat with their fingers crossed, hoping for a change to the Stamp Duty, so the least expected property announcement to come from the statement was actually the ban on tenant fees.

Cook said: “This is now going to committee so we’re not sure on what the exact outcome will be but I’d expect this to impact rental values. However, it’s widely anticipated that any changes to the legislation will take 12-18 months to come into effect.”

2017 predictions: what do the experts think?

So as you can see, you never really know what the year ahead is going to hold, however, from what we do already know, here’s how Romans expects the year to pan out.

Thinking of buying or selling?

On the whole we are expecting a similar number of property sales in 2017 as there were in 2016. Most people moving home have motivations that don’t change just because of the political and economic landscape, if your family is growing and you need an extra room, that need is still there.

For the movers that are not in a rush, the opinions around Article 50 and whether it will be a hard or soft Brexit may cause some delay to decisions. However in the main, property prices are expected to remain steady throughout the year (although obviously sensitive to level of demand) with a few areas locally that Romans believe will buck the trend in 2017.

Gibson commented: “Crossrail is still going to play a part in house prices for the towns which are located along the Elizabeth Line, with West Drayton, Burnham, Maidenhead and Reading having already seen significant increases. Reading however has been highlighted as the fastest-growing town or city in the country with predicted annual GVA increase of 2.5% (London is the next highest with 1.9% and the UK average is 1.5%). But this isn’t just Crossrail, there is a lot of development in the town, including residential development and a new train station at Green Park.

“Other areas that are worthy of note are Staines, West Drayton, Colnbrook, Datchet and Windsor following the recently announced go-ahead of the additional runway at Heathrow. We anticipate that it will be bitter sweet as some areas will benefit from the significant investment being made to infrastructure which will inevitably attract businesses, others will find themselves in close proximity to the runway and the extra noise that is predicted – especially if they don’t fall into the compensation area.”

Lastly, following the Autumn Statement, if the ban on tenant fees goes through, and the monthly rental costs actually do go up, we could see buying becoming an increasingly-affordable option.

Investing or letting in 2017?

Legislation on the buy-to-let market is continually being updated and so Romans would expect no less from 2017. But the things we know are coming and the effect we think they will have are:

Changes to tax relief for landlords were mentioned previously, but Cook explained: “Obviously this will have a greater effect on those landlords with higher mortgage leveraging. Up to half of landlords, who own their properties outright, will be unaffected. In addition, low interest rates on borrowing coupled with positive long term outlooks on both rental and capital growth suggest that most landlords will take a long-term view and will retain their investments.”

The announcement in the Autumn Statement around banning tenant’s fees is likely to have an indirect effect on property investors across the country. This could be two-fold, firstly, as it is likely to increase lettings agency fees, but secondly as rental values are also likely to be pushed up. Michael predicts: “Overall this is likely to leave the Landlord in a slightly better position. Add this to the widely speculated opinion rental growth will outstrip house prices over the next five years and I believe buy-to-let is still a steady and reliable investment.”

Other changes we’re expecting to see include the creation of the ‘Renter’s Rights Bill’ (which will include detail on the tenant fee ban), extension of HMO licensing (with an introduction of minimum room sizes), mandatory electrical safety checks, a rogue landlord’s and letting agent’s register and compulsory client money protection.

Cook concluded: “I can’t reiterate enough how important it has become for landlords to ensure they are completely up to date with all the legislation and the regular changes. Having a reliable agent to take ownership of that responsibility removes all the risk and subsequently makes the job of being a landlord less stressful.”

So overall, whether you’re buying, selling or investing, although recent events and surprises have slowed down the rate of house price increases, Romans’ view is that this is still a market worth investing in. Let’s watch this space.