So looking at the year ahead the key pointers are ....
- The UK economy will be very sensitive to swings in sentiment regarding Brexit terms and the housing market will follow.
- House price growth is expected to drop another gear with little or no growth over 2017 and lower levels of activity.
- Whilst affordability is good in most regions outside London and the south east, there is little in the economic data to drive strong price growth this year.
- Watch for rising inflation and shifting interest rate expectations.
- 2016 was a year of surprises: this year we would like the housing market and economy to surprise on the upside and emerge from the current fog of Brexit uncertainty.
Mark Carney, Governor of the Bank of England has warned that the pain of the Brexit decoupling has likely been postponed not cancelled. The health of the UK economy will be more uncertain than usual over the next few years.
Opinions remain divided on the impact of Brexit and we watch with interest the shifting patterns of consensus economic forecasts. For now the 30 or so economists regularly polled by the HM Treasury expect 1.2% economic growth for the year ahead. This is down from 2.1% six months ago.
For the residential market, the historically low interest rates are a good thing but this is unlikely to outweigh the more uncertain economic outlook which brings with it weaker employment and earnings growth. Rising inflation expectations, above the 2% Bank of England target rate, could soon shift interest rate expectations.
As we know the health of the economy has a large influence on the housing market. A weaker economy feeds through to the housing market with lower transactions numbers as home owners look to stabilise their position.
The Government continues to shoot themselves in the feet again as they launch further attacks on the private rented sector further reducing the available housing. As a result Landlords took a few knocks in 2016 so 2017 may be a harsher climate in which to operate. Some of the financial changes are being phased in from 2017/18 and will alter the way in which relief is given for interest and other financing costs.
Just to remind you that.....
â€¢ The first blow was dealt in the summer 2015 Budget when the Chancellor revealed plans to restrict interest rate relief for tax relief for finance costs to the basic rate of tax.
â€¢ This was followed up at the autumn 2015 Statement by two further blows . the introduction of a 3% stamp duty land tax (SDLT) supplement on second and subsequent residential properties.
â€¢ Then came news that he would implement a reduction in the capital gains tax payment window for disposals of residential property to 30 days.
So in summary from April next year the Treasury will start phasing in changes which will eventually see landlords pay tax on the entire rental income they generate from their properties.
They will not be able to deduct the cost of mortgage interest. Instead, they will benefit from a tax credit equal to 20% of the interest cost. It will mean higher-rate and additional-rate taxpayers will pay considerably more tax - and in some cases even pay tax where they make no profit.
But landlords structured as companies are exempt, and will continue to pay corporation tax on their profits.
It's true that you can circumvent these charges through setting up a business. But this is a far from simple process, and there are several pitfalls that need to be avoided along the way.
Limited Companies are looking really attractive at the moment, but they only work for certain types of investors, and people have to be aware of the implications further down the line.
Most landlords will need to set up special purpose vehicle in order to buy the property. This can be done online for as little as £20 but David Whittaker, of Mortgages for Business, recommends spending a little more - around £75 - to make sure you get all the right paperwork.
So the message to landlords is seek professional advice if you are looking to go down this route.
This reminds me of a very big lesson I learnt over 30 years ago when I sold one my first buy to let properties in Devon and then subsequently received a very large capital gains tax bill. My accountant (who I engaged after the event) told me I could have legally avoided or had a very much reduced tax bill by talking to him first. Needless to say I have had an accountant close by me ever since.
In Exeter we are already seeing increase in business levels as the Christmas festivities begin to become a distant memory and home owners and tenants make plans for their next move.
People need some where to live so housing is still a good investment but it's even more important to do your homework and get professional advice before committing to any purchase or sale.
As always I am happy to discuss any issues you may have so feel free to contact me at any time.