In this newsletter we take a look at a variety of topics, including how new
stamp duty rules will affect overseas landlords, recent property price
movements and the latest trends in the London property market.
April 1 saw the introduction of a 2% Stamp Duty Land Tax surcharge on non- UK buyers of residential, including buy to let, property in England and Northern Ireland. If the purchaser spent fewer than 183 days in the UK before buying the property, they will be considered as non-resident. This surcharge applies to the purchase of any residential property, whether freehold or leasehold, completed or off-plan.
The new surcharge is on top of the existing additional 3% stamp duty already applied to second and buy-to-let properties. A small number of exceptions apply, such as care homes or student halls of residence and purchases of property worth less than £40,000 or with less than 7 years left to run on a lease.
It is estimated that the number of overseas landlords is now at a five-year high and this trend is seen as one factor in the continued rises in property prices, especially in London. Contrary to the expectations of many, Brexit has not acted as a major disincentive to overseas property investors and indeed the postreferendum drop in the value of sterling has meant UK property has offered better value for money. The current stamp duty holiday on properties worth up to £500,000 has further benefitted overseas buyers.
The government is hoping that by reducing the attractiveness of property for overseas investors, especially in London, it will be easier for UK buyers to buy property. They have promised to spend the extra tax revenue generated, estimated to be around £650 million annually, on measures to alleviate homelessness. For landlords, both UK and overseas, the rental picture is improving as people get back to work as lockdown eases. As tenants’ income becomes more secure, rents are consequently slowing beginning to rise once again.
The Goodlord Rental Index reports that since July 2020, there has been an increase in rental income of between 1 and 2% in Greater London and over 2% in the South East. Growing confidence in the buy-to-let market is indicated by recent data from Keystone Property Finance. Their latest report shows that landlords are taking out larger loans than previously in the expectation of the return of good post-pandemic rental yields and the continuation of the rise in property prices in the longer term.
In the shorter term however, Nationwide’s House Price Index for the year to March shows a slight fall for the UK as a whole from 6.9% in February to 5.7%. They attribute the fall to a drop in demand ahead of the original March 31 end to the stamp duty holiday. As always, the overall figures contain significant regional variations. Greater London saw the weakest annual price growth of 4.8%, whilst the wider South East region was closer to the national average at 5.6%. With an increase of 8.2%, property prices in the North West rose by nearly double that of London.
However, given the stimulus measures announced in the budget, including the extension of the stamp duty holiday to June 31 and the launch of the 95% mortgage guarantee scheme, the property market is expected to remain buoyant for at least the next six months. Beyond this, activity in the property market will depend on the speed of economic recovery and what policy support remains in place.
Some good news for the capital comes in the shape of a report in The Evening Standard which reveals that the trend for London outmigration, triggered by the pandemic, might be beginning to turn around. Data from estate agents Knight Frank show that the number of Londoners looking for a new home in the capital is now 10% higher than it was a year ago. Whereas in the six months from March to September last year, the rural area of North Devon saw the biggest rise in properties under offer, in the six months since then, it is the London Borough of Brent that holds the record. Brent has experienced a rise of 53% in properties under offer and other London boroughs such as Hounslow (up 23%) and Dartford (up 28%) are also increasing in popularity.
If people are starting to appreciate once again what urban life can offer now that the end of lockdown is in sight, then the desire for larger homes with outdoor space, or at least a balcony, is as strong as it ever was during lockdown. Some agents report that London homes without a garden or balcony have fallen in value by up to 10%. Not only do people want larger homes to give them the necessary extra space for working from home, they are also keen to have some of that extra space closed off from the rest of the home. Estate agents are seeing a decline in the popularity of open-plan homes with large living-cum-kitchen areas, in favour of the more traditional layout of separate rooms each with their own function. The prospect of spending more time at home is clearly driving a renewed recognition of the importance of opportunities for a little privacy in our homes.
As the opportunities for outdoor gatherings grow with the arrival of better weather and the easing of lockdown, those of us lucky enough to have outdoor space are becoming much more creative in our use of it. Garden designers and retailers are reporting that gardens are increasingly being seen as an extension to our indoor living space. More of us are looking to create stylish outdoor areas where we can relax, eat, cook and entertain. Given the unreliability of our weather, these will often incorporate shelter such as a pergola or even a summerhouse. Homes that can offer well-designed outdoor space have always been able to attract significant price premiums and this is particularly true at the moment, even more so if that space is south-facing.
“Data from estate agents Knight Frank show that the number of Londoners looking for a new home in the capital is now 10% higher than it was a year ago”.