"Write the property market off at your peril," says Jeremy Leaf...

We’ve noticed over the last few months that house prices have been fairly stable not collapsing– especially in London – supported by low mortgage rates and unemployment as well as a shortage of stock which is partly offset by an affordability squeeze. Wages have been rising more slowly than inflation for some time which is compromising confidence and not helped either by economic and political uncertainty following EU referendum.

We have found pockets of demand remain in places where particular property doesn’t often become available for sale but has been sluggish where prices have previously risen the furthest and fastest. Moderating prices may give first time buyers an opportunity to take that vital first step on the property ladder provided they able to raise a sufficient deposit with or without recourse to the Bank of Mum and Dad. Certainly, they face less competition from investors due to various recent tax and regulatory changes which have reduced net buy to let returns.

Additional taxes or regulations on landlords are only acting as an extra inducement for them to sell or not increase portfolios further. The resultant shortages only add to upward pressure on rents and make deposit saving for first time buyers even more difficult!

Nationwide reported recently that London ended 2017 as the region exhibiting poorest house price performance for the first time since 2004 and the only area where values have dropped i.e. albeit by only 0.5%.

Optimism following the announcement that stamp duty would be abolished for most FTBs up to £300,000 in lst November’s Budget could give the whole market a lift. Nevertheless, the government’s own Office of Budget Responsibility took the view that the change could prove inflationary by increasing expectations of sellers that buyers could pay higher deposits! However, most expect prices and transactions will remain steady in 2018, driven more by the strength of the economy and progress in Brexit negotations.

Theresa May believes abolition of stamp duty for properties bought by first time buyers up to £300,000 has already benefitted 16,000 people. Stamp duty is said to have been cut for 95% of all first time buyers, with 80% not paying it at all. Labour consider that cutting stamp duty only drives up house prices without increasing affordable housing at a time when home ownership has hit a 30 year low especially among young people, new socially-rented homes are down 50% i.e. its lowest since records began, homelessness has doubled whereas not one of the 200,000 new homes promised under the government’s Starter Homes Initiative has been built!

Stamp duty at more affordable price levels remains a significant tax on mobility and barrier to activity.

Removal or reduction of the 3% stamp duty surcharge on additional properties, despite benefitting the whole market, would probably be perceived as a government u-turn so unlikely, especially as receipts are still rising.

Almost half of homes for sale between £1million and £2million in London have seen prices cut with average reductions of £142,000 (around 10%) which is three times the national average and the highest proportion since 2012’s double dip recession, according to data provider Lonres, Stamp duty increases in December 2014 and the fall in sterling since the Brexit vote, are apparently the main culprits.

The Bank of England tell us gross mortgage lending is still rising but has been mainly been supported by a boom in remortgaging whereas mortgage approvals, though up slightly, are below their 6 month average.

There is still clearly a significant shortage of affordable homes for sale and to rent. Extra housebuilding alone will not be enough to solve the problem as it only constitutes a small proportion of the around 1.1 million transactions which take place every year. A stagnant market for existing homes is bad news, not just for buyers and sellers, but for the wider economy

The government’s Help to Buy scheme, which apparently supports up to sell up to 80% of new build units on some developments, is regarded more as ‘Help to Sell’ by many. Help to Buy should be complemented, in my view, by faster delivery of planning consents and infrastructure. Viability assessments and ‘use it or lose it’ provisions must be seen to be fair for all concerned. More building on publicly-owned land at higher densities as well as lending and planning delays remain significant obstacles to development – especially for smaller developers but over which governments exercise little direct control.

I’m sure more could be done to encourage local authorities and housing associations to build additional homes for sale and to let at realistic levels. Allowing greater retention of Right to Buy receipts and more relaxed renting and borrowing rules by using housing revenues as collateral may make a difference.

A re-appraisal of green belt which results in more economic use of derelict parts while protecting the valuable areas where brownfield is exhausted, is long overdue.

The biggest obstacle facing aspiring first time buyers – raising deposits - is unlikely to be alleviated. Rents are not falling fast enough especially as landlords are suffering from increased taxes and legal obligations so not adding to portfolios but not necessarily selling.

Making a distinction on capital gains tax between longer-term owners and speculators would also stimulate more housing activity, in my opinion. Many of the former are deterred from selling by high tax liabilities whereas short-term owners enjoy a distinct advantage.

Tax advantages for downsizers and owners of space above shops to release more residential accommodation, which could be more effectively sold or let, would be another way of getting the market moving at the ‘affordable’ end. However, the government believes most downsizers are not without resources so enjoy sufficient incentive to move without additional help!

I also consider owners of homes left empty for at least 6 months for no apparent reason should be more heavily taxed than proposed in the last Budget to try to encourage them to make their properties available for sale/to let.

Further stimulus of longer term Rent to Buy at higher densities, also on publicly-owned land, would be welcome.

Prefabricated or factory-made modular homes may be yet another way of helping to not only reduce the shortage of stock but individual building times to about half a day while addressing the capacity and skills crisis in the industry.

I anticipate we may see increased council tax and several higher property value bands as part of a long-overdue re-valuation, which could go some way to financing some of these changes.

But is political timing right for the perhaps unpopular radical change required with minority government in power?

However, radical action to improve supply and demand is unlikely while political and economic uncertainty prevails.

Jeremy Leaf, a former RICS residential chairman & independent North London Estate Agency owner - January 2018


a) Stricter landlord/agent controls eg HMOs, criminal records

b) Bld2Rent – investor interest

c) Modest 2018 price/rental growth due to economic/political uncertainty