Will 2017 be as exciting as 2016?
Wow, what a year 2016 was! In investment news, we had just about everything in it, didn’t we? Looking back, I don’t think the UK property market and property investors could have been bombarded any harder. We’ve come out the other end, relatively unscathed. I’m now looking forward to 2017 with renewed positivity.
Here’s my brief review of the year, and a little peek into the future (even though I don’t have a crystal ball).
Property tax changes fail to stamp on property investment
The first thing that property investors had to contend with in 2016 were the UK property tax rules that are changing. The changes are wide-ranging and include new rules for wear and tear. However, it was two particular tax changes that gave property investors the real jitters:
- Increases in stamp duty
- Reductions in mortgage interest tax relief
In fact, these changes produced some sensationalist media headlines. The Spectator said that “Buy-to-let investing just became a very, very bad idea”. The Guardian said it was time to wave “Bye bye to buy-to-let”. The list of media pundits proclaiming that property investment was dead and buried as a profitable investment strategy was almost endless.
Instead of joining the doom merchants, we reviewed what was happening in the market. We analysed what those tax changes mean for investors, and produced the results of our work in our property investment blog. We helped property investors by:
Answering the question “Is property investment worth it after the UK property tax changes?”
Considering “UK Property tax: what to do next…”
Discussing “8 tax mistakes to avoid”, and…
Describing “4 strategies to reduce the effects of UK property tax changes.”
We also produced a book that removed the gobbledygook and jargon to help all investors in UK property – “The Non-Accountant's Guide to UK Property Tax”.
Property investors rushed to step ahead of stamp duty
The Telegraph reported in June that the stamp duty hike had trashed home sales in April. However, what had happened was that home buyers and investors had rushed through sales in March to avoid the stamp duty rise.
Taking the sales figures for March, April, May and June as a single total, there was practically no change in numbers that would have previously been expected. In fact, since then, property sales numbers have begun to normalise again.
Brexit and the property market crash that never was
The shock of the year came on June 23rd, when the UK electorate voted to leave the EU – ‘Brexit’. So far, almost all the predictions of all the experts have proved to be wrong. The country was due to go to hell in a handcart. Oh, and the property market was going to crash through the floor.
The Evening Standard ran a completely misleading article that prompted me to respond with “Why property investors should never believe all they read in the newspaper”.
Here’s a brief snapshot of how the UK economy has reacted since the Brexit vote:
- Economic growth has improved
- Business confidence is up
- Consumer confidence is up
- Unemployment has fallen, and employment numbers have increased
- Stock market hit record highs
While property prices in London have come under a little pressure:
- The UK’s average house price is now at a record high
- The number of buy-to-let investors has increased
- The number of new homes being built is 50% below the number needed
Trump elected, but no change for property investors
Continuing the theme of the underdogs winning against all the odds (Leicester City also won the Premier League last season), Donald Trump was elected as president in November. While there may be some effect on markets and the economy in the longer term, we’re going to have to wait and see. My best guess is that as far as property investment in the UK is concerned, Trump’s election will have little, if any, effect.
The Autumn Statement contained another kick in the teeth for property investors or did it?
After Trump came the Autumn Statement, and what has been widely interpreted as a kick in the teeth for property investors: the decision to ban letting agent fees for tenants. However, even if property investors absorbed the entire cost, they would lose only £192 a year. More likely, tenants would see their rent rise (like it has in Scotland since it barred letting agent fees for tenants).
What was lost in the fog of letting agent fees was the good news for property investors. Infrastructure spending is on the increase. There’s another £2.3 billion to support the building of 100,000 new build homes.
When it comes to infrastructure – one of the important property fundamentals that drive investment potential – the national infrastructure pipeline now measures a whopping £500 billion. It includes £13 billion on housing and regeneration, £138 billion on transport, and £75 billion on utilities. It is a colossal amount of money, earmarked for projects through to 2021, which will further support property investment in the UK.
Will this be a winter of discontent in the UK property market?
As autumn melds into winter, the property market tends to slow down. I expect that the Christmas and New Year period will be similarly quiet to previous years. However, it’s probable that supply will begin to pick up in January and February – as is usual.
What’s in store for property investors in 2017?
Although there are some key elections in Europe in 2017 (Germany and France especially), and the beginning of the process for the UK to leave the EU is expected to begin in April, it’s unlikely that 2017 will be quite as volatile as 2016.
The infrastructure spending announced in the Autumn Statement is set to gather pace, and that should help support the UK economy and housing market.
House prices have reached a record high in the UK this year. It may be that after years of outperformance, London house price rises in London will be muted. However, there will probably still be pockets of higher performance, particularly where large-scale infrastructure and transport projects are underway or about to commence.
Across the rest of the UK, 2017 looks set to be a stable, if unspectacular year. A Reuters poll of property market analysts predicts that house prices will rise by 2% next year and 2.7% in 2018.
The annual rate of house price inflation increased in November to 6%. It could be that, with infrastructure spending increasing, demand for homes outstripping supply, and a more stable UK political environment on the horizon, property investors will see returns more than that 2% prediction from the poll of property analysts.
Live with passion
Brett Alegre-Wood
