2017 was a year in which the UK property market was challenged by change: Brexit, a new Government, the Autumn budget, HMRC, PRA and FCA. We’ve heard plenty, and you’ve probably heard a lot more about these, so we’re not going to spend more time talking about what’s already happened (here’s our look back at 2017). Instead we will look at what we might expect to see in 2018 as a result of so much property disruption.
As a specialist property finance lender, it is crucial for us to get a feel of how the market is operating - for both ourselves and our customers. In the last few weeks of 2017, we joined various auction houses, property talks, and meet-ups to get a feel of how those involved in property investment day-to-day looked ahead to the future.
Whispered predictions of 2018
The £500k stigma
The 2017 Autumn budget scrapped stamp duty for first time buyers (FTB) of property purchases under £300k. For purchases over £300k, stamp duty is calculated as follows:
- £300,000.01 to £500,000: 5% (on that portion of the purchase price only)
- £500,000.01 and above: nothing on the first £125,000, 2% on £125,000 to £250,000, 5% on £250,000 to £925,000.
- £500,000 purchase = £10,000 tax bill
- £500,001 purchase = £15,000.05 tax bill
There has been a lot of speculation about how this will affect the wider housing market, some say it will inflate house prices and make it just as difficult for first time buyers, but generally it seems to have been welcomed by the first-time buyer market.
However, this new tax relief will only have an impact in regions where properties exceed £300k - this is predominately the case in London and the Outer Metropolitan region.
As expected, investors with properties in London have considered how this change could affect their businesses. Here are some predictions:
- Some FTBs looking at properties around the £500k mark may be keen to avoid the stamp duty rise, and make sure they don’t spend a penny more. This has had several investors worried - that they will be forced into accepting lower offers than £500k when they could previously have got more money.
- FTBs may consider using their savings entirely towards a deposit rather than paying for stamp duty fees. This may encourage them to look into investing in commuter hotspots outside London where they can hope to bag a property for under £300k.
Because of Brexit and wider BTL regulatory changes that have dampened the appetite for investment, the property market has been viewed as somewhat ‘soft’. This has led to a lot of seasoned investors hailing 2018 as a year where many ‘semi-professional’ property investors may let go of their properties.
The Autumn budget contributed to this prediction in two ways:
- Corporation Tax: removal of capital gains indexation allowance from 1 January 2018
Some portfolio landlords may start selling as a result
- Extension of CGT to non-residents holding UK real estate from April 2019
Offshore owners may dispose of their properties to avoid the taxation
Section 24 has also contributed to this prediction:
Section 24, otherwise known as the ‘Tenant Tax’ was announced in the 2015 Summer Budget, with the objective of eliminating tax relief on Landlord’s mortgage payments. This basically means landlords will be taxed on turnover rather than profit. With a phased approach, from April 2017 landlords will see an annual 25% cutback, until withdrawn in April 2020 (where it will be replaced by tax credit of 20%).
As a result of all this selling, many investors said they may be may be using 2018 to build up cash reserves to grab hold of potential bargains in 2019.
With Halifax and Nationwide reporting the slowest growth in house prices in 2017 since 2012, and the December 2017 month showing price falls of 0.6%, an excess of BTL property sales in 2018 could indeed fuel bargain-basement prices in 2019.
Definite changes to be aware of in 2018
Designed to strengthen data protection for individuals within the EU, the EU General Data Protection Regulation (GDPR) will come into force across the EU on the 25th May 2018 and will replace the 1998 Data Protection Act. Regardless of Brexit, GDPR will apply to all UK businesses. For property professionals, the GDPR will impact you if you collect, use or process ‘personal data’.
For more information on what this means for property professionals, take a read of this article.
Minimum Energy Efficiency Standards
As a result of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations passed in 2015, there has been a gradual rollout of minimum energy efficiency standards (MEES) which apply to both the residential and commercial private rented sector.
In 2016, domestic tenants were given the right to request energy efficiency improvements to their rented properties. This year, in April 2018 – it will become unlawful for landlords or property owners to grant or renew leases of both residential or commercial properties if they have an EPC rating below an ‘E’.
By 2023, these regulations will extend to the entire stock of rental property - both domestic and non-domestic in England and Wales. Forward-thinking landlords will start to invest in upgrades now, to beat the ‘last-minute’ rush, and the inflated costs that will cause.
Rental payments included on credit reports
It’s been a conversation starter for years. Why can you build a credit rating with, for example, a £20-a-month phone contract, but not a £1,000 monthly rental payment?
In the 2017 Autumn Budget, the government stepped forward with the announcement of a £2 million prize fund (open to all) to develop a Rental Recognition system. The prize challenges firms to create a system which can record and share rental payment data of tenants with lenders and credit reference agencies. It’s unclear when it’s aimed to come into force, but with development to end by 2018 - 2019 looks possible.
Rogue landlord national database
As a result of the range of measures introduced in the Housing and Planning Act 2016 to tackle rogue landlords, the government committed to introducing a database of rogue landlords and property agents convicted of banning order offences or having received two or more civil penalties. Some sources point to Government introducing this on the 6th April 2018.
Keen to prove himself a man of his word, Mayor of London Sadiq Khan has already fulfilled his promise of launching the Rogue Landlord and Agent Checker for London. Sitting on the Greater London Authority website, the database went live at the end of December 2017, and has already been populated with records from 10 London boroughs, with other boroughs agreeing to submit their records in the near future.
Khan commented: “Many landlords and agents across London offer a great service – but sadly some don’t. My new database is about empowering Londoners to make informed choices about where they rent, and sending rogue operators a clear message: you have nowhere to hide.”
New licensing rules for Houses in Multiple Occupation
Estimated to affect around 160,000 houses, the new licensing published in December 2017 will apply to many flats and one- and two-storey properties if they are occupied by at least five people from two or more households.
Again, this is part of the Housing and Planning Act 2016, as one of a raft of new measures to improve bad practices and overcrowding in the private rented sector. The full outcome is available here.
To 2019 and beyond
What wasn’t in the Autumn Budget, wasn’t forgotten. Business minded property investors tend to be one step ahead. They seem pretty hopeful for these factors to come into play:
Upward development of single storey to become permitted development
Removing planning permission costs for expanding properties, is an obvious win.
Rental payments to be included in credit reports
As mentioned earlier on, the Government’s £2 million prize fund to develop a Rental Recognition system, is hoped by many to be rolled out in 2019. But who will be affected by its implementation and why? Well actually, it will affect…
Giving them a chance to work on their credit rating score via their rental payments. On a negative note, this also means it won’t be great for those with a poor history when seeking a new rental agreement
- Lenders and credit reference agencies
Having more information on an individual’s payments will them a more holistic, accurate credit score and risk of lending
- Brokers, estate agents and landlords
Providing a more rounded tenant vetting scope and motivating better behaviour from tenants as their history will be accessible
This year looks to be another interesting year for the property market. Despite a turbulent 2017 with many changes and disruptions, there was an undeniable growth in property professionals using more flexible and alternative ways to raise capital for their projects. Bridging finance lending in particular reached a new high of £4.7bn in September 2017 (post a pre-Brexit £4.4bn high) and many expect this to continue as investors regain confidence in the market.
To find out more about West One Loans or for a quick conversation on your financial options for your next property project, give us a call on 0333 123 4556 or click the button below.