Austerity measures & spending cuts will impact on short to medium term on UK property market
The mainstream property market in the UK is at tipping point and the new coalition government is not addressing the most important issues that impact on real estate, according to consultants.
The state of the economy, in particular household finances is of vital importance and next month’s emergency Budget is crucial as spending cuts and austerity measures will determine the short to mid term outlook for residential property, according Yolande Barnes, head of residential research at real estate adviser, Savills.
‘Our research suggests that mainstream property markets are at a tipping point, as subdued demand is being met by increasing supply of marketed stock. The abolition of HIPs should encourage more vendors to test the market so we expect to see steady increases in the number of homes for sale. This reversal of stock shortages that we saw last year should halt and may even reverse price rises,’ she explained.
‘The propensity of the market to fall will be determined by the number of distressed sellers in it. In this respect, it appears that the quantity of repossessed stock will remain minimal as the assurance that repossession will be a last resort outcome will provide a welcome cushion,’ she added.
Although austere fiscal measures and public spending cuts have the potential to rock sentiment in all markets, the prime markets are more prone to financial market movements and policies affecting high earning and high net worth individuals, Savills believes.
The bigger risk to these markets, particularly the prime central London market, will be the detail of any policies that impact on the appeal of the UK, and London in particular, as a place to invest and do business. In this respect, the cumulative effect of the bonus levy, 50% tax rates and threats to non domiciliary status are already making the UK marginally less attractive to footloose international wealth. The announcements on Capital Gains Tax rate changes may further discourage second home owners and landlords in these markets.
‘Many clients are consulting their advisers on how best to minimise their liability, while others are reconsidering the role of property within their portfolios. A worst case scenario would be a flood of disposals, and a surge of new stock. In this respect, the timing of any changes is critical,’ said Barnes.
The abolition of HIPs is widely welcomed. ‘They did not help in any way to speed up the process for either buyer or seller as both parties continued to rely rather on their solicitors’ advice, as they did pre HIPs. Added to this, in many cases, some of the information contained in the HIP, the searches in particular, was out of date by the time the sale was agreed,’ said Justin Marking, head of Savills residential sales.
Lucian Cook, director of Savills residential research, added the retention of Energy Performance Certificates is a good move but he warned that many people find them difficult to understand at present. ‘Increasing awareness of environmental issues and energy costs will mean that home owners will increasingly need this information but we need to ensure that EPCs measure the right things and present them in a way that is easy to understand,’ he added.