MOV8’s Property Market Predictions for 2016
What lies in store for the Scottish property market in 2016? For our predictions, read on…
House Prices
The average house price across East Central Scotland has increased by 6% from £202,037 to £214,172, for the months of January to November 2015, with an increase of 6.8% within Edinburgh itself, from £214,813 in 2014 to £229,374 for the year to date, according to the latest statistics released by the ESPC.
Looking ahead to the start of 2016, we would anticipate that the upward trend in house prices across Edinburgh and East Central Scotland is likely to continue.
Interest Rates
The Bank of England’s bank rate (commonly referred to as the ‘Base Rate’) has been held at a historic low of 0.5% for more than six years as the Bank of England has tried to encourage consumer spending to stimulate economic activity. The question that anyone thinking of buying a property wants to know is, ‘When is this rate likely to increase?’. Economic analysts have been reserved throughout 2015 as to when an increase might happen. Andy Haldane, Chief Economist at the Bank of England said in September 2015 that the case for raising interest rates is “some way from being made”, while Capital Economics said that it was “easy to imagine rates not rising until the second half of next year”.
The Bank of England has reduced its outlook on estimated economic growth in 2015 from 2.8% to 2.7%, whilst cutting the outlook on economic growth in 2016 from 2.7% to to 2.5%. This means that, in theory, an increase in interest rates is less likely in early 2016.
However, on 16 December 2015 the US Federal Reserve increased interest rates by 0.25% to between 0.25% and 0.5%. The Confederation of British Industry (CBI) has predicted that this is unlikely to pressure the Bank of England into a swifter increase. Rain Newton-Smith, the CBI’s Director of Economics, said: “Alongside the US, the UK has been one of the best-performing advanced economies in recent years, but the Bank of England probably still has a way to go before rising inflationary pressures at home persuade it to follow and up interest rates.”
It remains to be seen whether these experts are right, but the longer that interest rates and therefore mortgage rates remain at historically low levels, the longer the housing market will benefit from increased affordability of mortgage finance, and therefore of housing, for potential property buyers in the UK.
Land Building Transaction Tax (LBTT) Supplement
The Scottish Government, on 16 December 2015, announced a change in Land Building Transaction Tax (LBTT) for Buy to Let investors or people buying a second home.
Scotland’s Finance Secretary, John Swinney, announced that there will be an additional supplement of 3% of the purchase price of the property, on top of the existing LBTT. The new tax supplement on LBTT will apply to anyone purchasing an additional property for £40,000 or more. The announcement echoes announcement by the UK’s Chancellor of the Exchequer, George Osborne, in November 2015, that applied to the rest of the UK.
This means that properties that are currently exempt from LBTT, due to their purchase price being under £145,000, will be subject to the new tax of 3% of the total purchase price for these categories of buyers.
According to the Scottish Fiscal Commission, the official watchdog of the Scottish Government’s plans on tax and spending, the additional levy is likely to affect 8,500 to 12,500 property purchase transactions each year.
The Scottish Fiscal Commission also warned that it is hard to forecast the impact of such a levy as transactions may be brought forward to the current financial year to avoid the new tax, with Mr Swinney currently looking at bringing forward legislation on the new tax so that it can be in force on 1 April 2016 for the start of the new tax year.
In our opinion, there is a possibility that this could have a huge impact on Let to Buy, in other words, releasing equity in your existing home to buy another one and then letting-out your original home, as it significant increases the costs involved. We would predict that this will also lead to a bit of a stampede for Buy to Let investors to purchase suitable properties and complete on the sale before the changes are introduced on 1 April 2016, mirroring the situation at the ‘higher end’ of the property market in the lead up to the replacement of Stamp Duty by LBTT on 1 April 2015.
The new levy will likely have an impact on current landlords who may have been considering placing their portfolio properties on the market, with the supplement acting as a potential deterrent for potential investors, and we may therefore see a flurry of these property owners looking to act quickly and complete their sale before 1 April 2016.
Summary
With interest rates expected to remain low, for a good portion of the year at least, and with mortgage product availability constantly improving, we’d expect that 2016 will lead to an increase in property activity across Edinburgh and the Lothians, and indeed across the whole of Scotland, with prices continuing to rise steadily and buyer activity remaining strong, along with a potential flurry of increased activity ahead of the LBTT supplement on second properties on 1 April 2016.
We wish you all a very Merry Christmas and happy New Year and look forward to bringing you more Scottish property news in 2015!
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