8 Property Predictions for the Year Ahead
We spoke to Robert Jones, Director of Property Investments UK, to see what 2016 has in store for the housing market, property prices and investors. Will prices continue to rise and interest rates s...
We spoke to Robert Jones, Director of Property Investments UK, to see what 2016 has in store for the housing market, property prices and investors. Will prices continue to rise and interest rates stay low? How will the change in stamp duty affect investor's portfolios and which areas will provide landlords with the most attractive yields this year? Read on to find out.
BUY-TO-LET TAX CHANGES
No-one likes paying more or would particulalry choose to pay more tax, but I see the proposed tax changes on buy-to-let properties as bringing many opportunities to the table for professional investors and landlords. The demand for rental property won't alter as these changes come into effect, but the supply certainly will. So as an investor, you need to focus on property strategies that allow you to meet the demand and add value; select areas and properties with good cashflow that will always work well in any market. We ceratinly plan to continue investing in buy-to-lets for many more years to come.
INTEREST RATE RISES
It's very difficult to predict if there wil be a rate rise, as we're constantly hearing that a rise is just around the corner. I think 2016 will see the same activity from the Bank of England and interest rates will be held whilst they wait for the changes they have made to legislation and taxation to start trickling through. A small increase could come next year if inflation starts to rise to their targeted levels as they try to balance the scales.
The UK has very local housing markets, London being a prime example. However, across the country real-term house prices are beginning to increase already, partly because of the rush from investors buying before the increased stamp duty takes effect in April and partly because of general confidence in the market. We're seeing this in real time when out viewing and offering on properties, with increased competition and bullish prices from Estate Agents. I think this will slow down after March, but over the year, house prices will see a marked increase from previous years.
STAMP DUTY CHANGES
Again, not ideal as no-one likes paying more tax, but this is designed to hit investors and stop them running rampant with rapidly increasing offers if house prices start to rise exponentially. Keeping prices stable overall is never a bad thing, as it's easier to buy on value and cash flow when prices are stable than when house prices and the market is overly bullish. Ultimately, any property that would only appeal to investors (run down houses, unusual conversions, houses in buy-to-let heavy areas) will simply get offers reduced in line with the new stamp duty, so the tax hit is likely to be passed on to owners on stock that is only attracting investors, in the form of lower offers. In areas and houses where there is more interest from homeowner occupiers, it's likely that investors will lose out unless they take a hit and pay more, as they're no longer able to compete like for like with their offers due to the increased stamp duty.
From regular conversations we are having with our mortgage brokers, more and more products are becoming available. The more commercial savvy banks are already looking at products that appeal to limited companies to attract investors looking to adapt in-line with recent tax updates. I think 2016 will continue to offer many financing options for the right investor.
There are some great schemes coming in to play and the impact of Right to Build will help this, but the targets are still way off what's needed to keep up with demand. Ultimately, I think an overhaul of the planning system is needed if targets are going to be met, because whilst any land or property can be sold with a massive increase in value simply because it has planning, this shows that the system is limiting supply. I've seen investors walk away from many developments because the uncertainty of getting planning or the timeframe is so prohibitive before they have a concrete answer that the projects simply aren't viable. If planning could be made more streamlined and efficient then projects would get off the ground quicker and many more houses could be brought in to use.
BEST AREAS TO INVEST
As we tend to focus on the Northwest, my recommendations are likely to be locally biased. However, there are genuine reasons why I can see these area's increasing in 2016. This is because key fundamentals, such as population growth, employment growth and investment in the areas are all present. My top three areas for growth in 2016 are Manchester, Salford & Warrington.
ONES TO AVOID
If you're planning ahead and have factored in the changes to stamp duty, interest rates and other intended tax changes, then I would avoid buying in areas that only deliver 'potential' growth in 2016. The figures might look good today, but in three years time, properties that have only been purchased with growth in mind and zero or little cashflow will quickly go underwater and cost you dearly every month. Focus on cashflow and yield in 2016 and beyond, and you will be much better placed to ride out any interest rate rises and unknown tax agendas.