House prices in the UK will rise by 3.1% in 2018, slow slightly to 3% in 2019 and then 2.9% in 2020, with the higher rate next year down to stamp duty change, according to new guidance.
The figures were published by the Office for Budget Responsibility (OBR), an advisory non-departmental public body established by the UK Government to provide independent economic forecasts and independent analysis of the public finances ahead of the Budget.
They often get buried among all the other Budget news but along with an advisory note from HMRC also published to accompany the Budget announcements, the data indicates that prices are going to rise due to the abolition of stamp duty for first time buyers.
The OBR also says that house prices are expected to rise by 15% between the second quarter of 2017 and the first quarter of 2022, less than its last forecast of 22% in March. The OBR cites a fall in expected growth in real incomes as a reason for the longer term slowdown.
Unsurprisingly the OBR has also revised its forecasts for Stamp Duty receipts downward. It is forecast to raise £9.6 billion in 2017/2018, rising to £11.7 billion by 2022/2023. Revenue from second homes and buy to let purchases is expected to contribute between 23% and 24% of the total annual receipts in any given year. It has also estimated that the stamp duty change alone will cost the treasury £3.2 billion over the next five and a half years.
The biggest impact of the stamp duty change could come in London where first time buyers face much higher prices while at the other end of the market the sale of more expensive homes have been hit by several factors, including higher stamp duty bands introduced in 2014.
But the prime market will benefit from no change in this Budget, according to Tom Bill, head of London residential research at Knight Frank. ‘The Chancellor’s stamp duty cut for first time buyers is good news as he maintained the status quo for the rest of the market,’ he said.
‘Following more than 25 tax changes in recent years that have affected the prime London residential market, the absence of any further measures will inject a degree of certainty, particularly now there is only one Budget per year,’ he explained.
‘There is anecdotal evidence to suggest that some buyers had been holding off for the Budget in the belief that stamp duty rates may change. Early indications following the Budget suggest such transactions are now likely to proceed as originally planned,’ he added.
He also believes that the Chancellor’s longer term focus on maintaining the UK’s leading position in the technological revolution is a positive signal for the prime sales and lettings markets in London.
‘This is because the reliance on financial services as a source of demand is quickly evolving to include tech companies, many of which are significantly boosting their UK presence. All of which suggests that the economic and political backdrop will continue to have the biggest impact on the prime London market in the short term,’ he concluded.
However, some would have liked the stamp duty reform to help the London market more. ‘There was actually very little in the Budget that will help the London property market. I feel that there were a lot of missed opportunities and I am disappointed that there wasn’t a much further reaching reform of the property taxation system,’ said Andrew Ellinas, director of agents Sandfords.
‘The problem in London is that a £500,000 budget won’t buy you very much. Also, there wasn’t any help for home owners already on the ladder that need to move. The increased stamp duty for properties over £1 million means many in London can’t afford to progress so where are all these first time buyer properties going to come from? The London property market is the driving force behind the entire economy and if that stops then it prevents transactions elsewhere,’ he added.
London Mayor Sadiq Khan is also critical and called it a Budget that did nothing for the city. ‘The Government’s most astonishing failure is on housing. The measures will not even paper over the cracks. The Chancellor did not announce a penny of extra grant for affordable housing in London even though we know the current spending is less than a fifth of what we need,’ said Khan.
‘Everyone knows we need councils to be able to build more, but there was no commitment that any councils in London will be given the powers to do so. This Government is all talk and no action on housing. London needs to build 66,000 homes every year in order to meet the needs of its growing population,’ he added.