Although there is no shortage of significant UK and world events capable of influencing markets in 2017, the auction room – and the sub £5m markets which power it – is expected to remain active and ripe with opportunity as a result.
Donald Trump will be US President from 20 January. If his behaviour in office is as erratic as during his campaign, we are in for many surprises. The full impact of Brexit will only be realised over an extended period – and nobody can accurately forecast the extent of its effect on markets, property prices, trade deals, in fact anything, nor indeed the duration of so many fundamental post Brexit adjustments. Theresa May has promised that Article 50 will be invoked before April thereby starting the formal process for Britain’s withdrawal from the EU. Although the auction rooms appeared to have been largely unaffected post referendum, there is no guarantee that this sustained confidence will continue after a formal Brexit. And there is no apparent Government plan to help any forecasts.
Philip Hammond’s spring budget is unlikely to ease the pain inflicted on buy to let investors during 2016. The 3% stamp duty surcharge on investments and second homes appears to be here to stay. In addition, the first phase of reductions in tax relief kicks in from 1 April when landlords will only be entitled to deduct 75% of finance costs from rental income. We have seen some residential investors turn their attention to commercial or mixed use buildings as a result of the lower taxation in this sector.
Developers in London will have to assess the increased requirement of 35% affordable housing provision (although not the original 50% proposed by the Mayor). This is likely to have an impact on site values.
The prime central London market (£5m+) faces challenges and will be one of the UK residential sectors with the lowest growth on average. There is likely to be further stagnation – or price falls – in the £10m+ markets, although this will have little impact on the auctions. There will certainly be buying opportunities later in the year.
Ground rents will continue to be seen as secure long term investments. This market is very specialised but one that is growing in popularity as investors become more educated. Buyers should look out for lots that are subject to lessee nominations under the Landlord and Tenant Act. Research shows that these can be bought at reduced prices. The sector has however been the subject of parliamentary debate. Expect government intervention and further regulation in the future.
A weak post Brexit pound – now at its lowest level since 1985 – has encouraged overseas investment. The UK is still seen as a safe haven. Major conurbations outside London, particularly those with strong tenant demand, are the areas to watch. 2015 belonged to London, 2016 was arguably a year of transition – but 2017 will be the year for UK cities. Birmingham, Manchester and Leeds, for example, will offer great value for money, decent yields and the prospect of good capital growth. The UK is still experiencing record low interest rates, low inflation, a stock market that has repeatedly tested new highs and, above all, an embedded mentality of property investment and aspiration to ownership. “Generation Rent” will ensure a sustained, if partially reluctant, tenant pool. London rents will rise at a softer pace this year but other major cities should see healthy rental growth. Investors will still face competition from first time buyers and owner occupiers with access to finance and the “bank of mum and dad”.
The year ahead should be one of slow steady growth overall. The significant identifiable events ahead will inevitably lead to some caution and market ripples. But these are where the astute will identify buying opportunities. The auction room will be where these opportunities will be immediately manifested. And as always, Allsop will be endeavouring to ensure that reserves remain realistic in order to allow the broadest participation of bidders.