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Thursday, 2nd April 2015

Categories: Market Analysis

Author: Mike Day

The property market in and Winchmore Hill, Southgate and surrounds  has remained reasonably buoyant in the early weeks of 2015. However, levels of available stock in the market are fluctuating as uncertainty about the General Election leads to a certain amount of “sitting on hands” and “wait and see”.

This will undoubtedly be a temporary situation as the overall economic picture and balance of supply and demand dictates that the market is likely to remain strong in both sales and lettings well into the future.

The Budget

George Osborne’s recent Budget saw him understandably play up the Government’s economic record and he talked about the growing strength of the economy and, in particular, low interest rates, low inflation, growing prosperity, debt and deficit reduction and reduced unemployment. Anyone would think there was a General Election just around the corner!

A new announcement in the Budget that will directly affect property was the introduction of a Help to Buy ISA which can be used by first time buyers to fund a deposit on a property purchase.

This will allow first-time buyers to get a government top-up of a maximum of £3,000 on £12,000 of savings if they put this money into a Help to Buy Individual Savings Account (ISA).

These are earmarked to start in the autumn, allowing first-time buyers to save up to £200 a month in this ISA, plus £1,000 in the first month. This can be used to buy homes of up to £250,000 outside of London and up to £450,000 in London.


Successive Governments have failed to oversee adequate levels of house building over many years and this trend, whilst improving marginally year on year, continues. In addition, a large proportion of the properties being built are being bought by investors and then let in the private rental sector. Whilst rented accommodation is vital as part of a mixture of tenures, this situation is exasperating the shortfall of property to buy and also closes one of the opportunities to “close chains” and help enable others to transact in the market. This has the effect of helping force prices upwards through the simple laws of supply and demand.

It is this balance (or lack of) in the supply and demand equation that means that house prices locally are likely to continue to move upwards, restrained only by the ability of buyers to afford to buy.

The Government’s Help 2 Buy scheme has now helped 80,000 people buy their own home and the Tories have just announced plans to build an additional 100,000 starter homes a year (200,000 in total) by 2020 if they are elected.

As well as the aforementioned ISA, a 20% discount scheme on the purchase of a new home has been announced which will apparently be paid for by developers saving costs on planning and administration costs.

These schemes sound fine on paper but can create an artificial market, are largely a sop to developers, and the impact that occurs when the schemes cease operating has yet to be quantified.

UK Households

The Government has recently released figures showing that owner occupation has fallen to just 63% of households with the private rental sector at 19% and social housing 18%. It is likely that there will continue to be pressure on social housing and that this will reduce further as the private sector continues to grow over the next few years.

The Buy to let market has actually grown by 32% per annum for the last two years.

The General Election choices

Housing and housing issues are high on the political agenda, as a growing population, affordability and shortage of supply affects everybody.

In regards election manifestos, the Tories are proposing to extend the Right to Buy scheme to allow those renting from Housing Associations to purchase with the same discounts as those buying directly off Local Authorities. They have also announced a review of inheritance tax on property with the likelihood that the thresholds will be increased should they remain in power.

Labour and the Lib Dems are proposing the introduction of an annual “Mansion Tax” on properties valued at £2 million or above. This is proposed at 1% (£20,000 at £2m) per annum. This will clearly impact on properties at and above that price and the ability to collect such a tax from potentially asset rich but cash poor owners is another issue.

Labour are also proposing much greater regulation of the private rental sector including reintroducing rent controls and limiting the level of rents. They also want to introduce longer tenancies. This may well prove to be misguided as it would be likely to lead to many landlords pulling out of the sector in search of better investments and potentially reducing the amount of property available to rent. Mortgage lenders also have reservations on longer tenancies due to potential issues of possession in the event of mortgage default.

In addition Labour propose to remove the ability to charge tenants any fees. This will simply put the cost onus on landlords who will seek to recover through higher rents. Again this is likely to actually hurt the very sectors of the population they apparently wish to assist.

The Greens (or the Watermelon party as they are known in America, as they are green on the outside but red on the inside)are even more extreme and would remove tax relief from allowable business expenses such as buy to let mortgages, thus making the cost of owning an investment property much higher. This would definitely result in many landlord investors withdrawing from the market in search of better investments and would reduce the supply of rental property which in turn would see rents increase.

There is, of course, a view that politicians should not interfere with the market, which is perfectly capable of adjusting and finding its own levels, but the reality is that this is unlikely to ever happen, whether it is by headline grabbing policies directed at the voter or through funding arrangements “behind the scenes” with banks that enable a greater flow of funds into the system to facilitate borrowing.

As with all markets, competition helps ensure choice and, whilst there is a need to ensure strong and fair legal frameworks, at Peter Barry we do not feel it is time to throw the “baby out with the bath water” in the search for an “instant fix” or “vote winning” solution.