The results of last week’s UK General Election were a surprise to politicians, pollsters and the general public alike. But how are the policies of the new government likely to affect the housing market?
With the numbers of those obtaining a mortgage steadily declining over the last decade, the Conservatives have pledged to double the number of first time buyers and encourage house building in areas of high demand. What will these measures mean for homeowners and investors?
Help to Buy Extended to 2020
The Conservative Party prides itself on being the party of home ownership. The government have pledged to extend the coalition’s Help to Buy scheme until 2020, and will also introduce a Help to Buy ISA, which will enables first time buyers to save up to £12,000 tax free with a £3000 top-up from the government.
With the average deposit for a starter home currently standing at £15,000, the ISA should help more first time buyers get on the housing ladder. In turn, rising demand from first time buyers should help to ensure that house prices continue to rise steadily in 2015 and beyond, as they have since the introduction of Help to Buy.
Construction of 275,000 Starter Homes
Another policy designed to boost first-time buyer numbers is the government’s commitment to building 275,000 starter homes by 2020. These properties will be reserved for the under-40s and will be offered at a 20% discount on the market rate. Many of these homes may be built in new garden cities, such as those announced at Ebbsfleet in Kent and Bicester in Oxfordshire.
While the number of homes proposed may seem high, in fact this is about 20% of the number needed to match current demand. The CLA estimated in 2013 that 230,000 homes would need to be built in England each year to match current population rises. As a result, prices seem likely to continue to rise even in areas where a lot of new homes are built.
Protection of the Green Belt from Development
The government has pledged to ensure that any new housing is built according to local consent, with greater local control of planning applications and a commitment to safeguard the Green Belt from development. This will help to reassure residents in sought-after suburban locations, ensuring that their property values are maintained.
At the same time, local councils will be compelled to make 90% of potential brownfield sites available for development in London, with a new Brownfield Fund to help make more land available for new homes across the UK. These measures should increase the numbers of new homes available in central locations where amenities and demand already exist.
Extension of Right to Buy to Housing Association Homes
Tenants living in Housing Association homes will also be given the right to purchase their home at a discounted rate. While many tenants in London properties may find that even these discounted properties are beyond their reach, the scheme may enable other tenants across the country to buy their home for the first time.
Because tenants are already resident in their homes these sales will not directly impact current housing demand, but funds released from the sales of homes will be used to build new housing association properties, offsetting the loss of social housing.
Highest Value Council Properties to be Sold
The government has also proposed the sale of the highest value Council properties across England. In this case the most expensive properties owned by each council will be sold off when they become vacant.
Properties are likely to be sold one at a time and so are unlikely to adversely affect the local property market, and may prove ideal renovation and development opportunities.
Inheritance Tax Threshold Raised to £1 million
As part of a number of changes for pensioners, the government has pledged to increase the Inheritance Tax threshold for married couples and civil partners to £1 million, effectively taking most UK family homes out of tax. There will also be a new transferable main residence allowance of £175,000 per person.
No Mansion Tax, No Rent Controls in England
The Conservative Party victory means that there will not be a Mansion Tax affecting UK property worth over £2.2m. Before the election result was announced there had been a perceptible slowdown in the London prime market due to uncertainty about the tax.
Many London-based estate agents have reported a surge in luxury property sales as exit polls were announced, with potential buyers seeking to close deals before prices start to rise once more.
Scotland is a Different Country
The landslide victory of the SNP in Scotland may help to cement housing policies that are very different to those in England.
The Scots have invested heavily in affordable housing, with more than £1.5bn budgeted for affordable housing developments since 2011. An additional £463m has been set aside for 2015-16. The right to buy Scottish council properties has been scrapped, with new properties no longer eligible. Long-standing tenants will not be able to buy their council home after July 2016.
The rental market is also significantly different in Scotland. Letting agents’ administrative fees have been banned, and local councils now have powers to tackle unfit private rented housing, as well as mandating regular carbon monoxide testing and electrical safety checks.
With Holyrood supporting local councils’ ‘no evictions’ policy due to the impact of welfare reforms, those private landlords providing social housing have less control of their properties than those south of the Tweed. This situation does not look set to change in the foreseeable future.
Continued UK Property Market Growth
The Conservative election victory would suggest that the UK housing market will continue to rise over the coming years, as demand and supply are carefully managed to increase access to housing without flooding the market with lower-priced homes.
Those located in desirable homes near the Green Belt can rest assured that their homes are unlikely to lose value due to new developments. Investors in the prime London market can also be reassured that there will not be a new tax on the highest value properties.
Even with the construction of new garden cities and brownfield developments, it seems likely that house prices will continue to rise across the country. With demand also high in Scotland, prices are likely to grow steadily in all urban areas, just as they have across most of the rest of the UK in 2014-15.