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IMPROVING THE HOME BUYING AND SELLING PROCESS
Activity across the sector exploring options for reform, including estate agents and lenders as well as conveyancers, continues to proliferate. A number of working groups are looking at different aspects of the current process to identify ‘quick-win’ improvements and the Ministry of Housing, Communities and Local Government continues to press hard. It is not yet clear how likely it is that those strands of work will result in actual change and when. It seems that HM Land Registry’s work to digitise its data and processes will in fact have a much greater impact, although over a longer time frame. They have also begun to look at how ID verification by multiple agents at different points in the process might possibly be streamlined. The CLC is working closely with HM Land Registry across their wide agenda.
Change also looks likely to be driven significantly by disruptors entering the market. Third party managed accounts or escrow systems are one such group. Potential tools are developing fast and 2019 could see products brought to market that would significantly change conveyancers’ processes and reduce risks inherent in the management of client account.
The CLC is leading the other front line regulators in launching its new transparency rules and guidance and supporting firms to prepare to be in compliance with them by the 6th December deadline, when the new rules come into force. If the CMA is right, better informed consumers could begin slowly to change the commercial aspects of conveyancing and especially the relationship and flow of work from estate agents to conveyancers. We will be monitoring the impact of the new approach closely alongside supporting compliance.
ECONOMIC AND MARKET INDICATORS
Several commentators make the point that the current economic growth cycle has lasted for longer than usual and so we may be nearing its end. Some say that lead indicators such as the price of oil and gold re consistent with a coming downturn. However, there is so much in the world that is unprecedented – such as Brexit – or that have not been experience for a very long time – populism, a protectionist White House – that forecasting is now very difficult.
EY Item Club
With a slight downward revision to UK growth in 2018, form 1.4% in summer to 1.3% in its autumn forecast, the EY Item Club is emphasising that the risks to the UK economy remain weighted to the downside. They note that the UK’s trade performance has tailed off in recent months despite the devaluation of sterling since the Brexit vote. Evidence of the uptick in real pay levels has weakened too, suggesting that consumers will be further squeezed by higher oil and commodity prices.
The Club expects a ‘modest uptick’ in growth to 1.5% in 2019, 1.7% in 2020 and 1.8% in 2021 but no return to the historic trend rate of growth. They also note that these forecasts are based on an assumption of a relatively smooth Brexit. They recommend that it would be prudent to stress test businesses against the scenarios of a short period of severe disruption following a no-deal Brexit followed by a recession of three or four quarters.
UK Finance Mortgage Trends – Q3 2018
Data on the current situation is a little more cheerful than EY’s longer term forecast. UK Finance reported in September that the overall value of new lending to home movers in August 2018 was the same year on year at £8.5bn though the number of new home mover mortgages was 2.3% down. Remortgages were fairly steady year on year at 37,100 in August. Lending to first time buyers was up 5.2% year on year at 35,500 or £6.1bn.
The average first time buyer was 30 and had a household income of £42,000.
HM Land Registry’s House Price Index – August 2018
Across the UK, HM Land Registry reported that in August 2018, house prices rose by 0.2% on the previous month and by 3.2% on the previous year. This of course smoothes over significant regional variation. The Index finds zero growth year on year in London, for example, around 2% growth in the East and South East and 3% growth in the North East and North West. Scotland however saw 5% price growth over the twelve-month period.
This seems to continue a trend that we have seen for some time now that might be attributed to the effects of less foreign and buy-to-let investment in the London and SE property market, as well as affordability issues, slowing growth there while wage growth – albeit modest –first time buyer incentives and possibly also limited supply of housing help other markets grow.
Bank of England Credit Conditions Survey – Q3 2018
The Bank’s Q3 report bears out something that we have heard anecdotally from lenders and estate agents about the tightening of secured lending to households. The Bank found it had decreased in the three months to August and is expected to decrease again in the three months to the end of November. Unsecured credit is decreasing in parallel as credit-scoring criteria have been tightened. Demand for both secured and unsecured lending had both increased.
RICS Residential Market Report – September 2018
In their headlines, RICS report that:
• New buyer enquiries weaken slightly while twelve month sales expectations turn negative
• Prices remain flat nationally with regional disparity still pronounced
• Volume of fresh listings continues to fall in both the sales and lettings markets
RICS also notes that the time from listing to completing a sale has stretched out to 19 weeks. They report a flat to slightly negative sales trend across the UK. Northern Ireland and Wales did report very modest sales growth in September.
Outside London, the East and the South East, there is an expectation that price growth will continue over the next twelve months.
Nationwide House Price Index – September 2018
While Nationwide finds the same mixed picture across the UK, they found a slightly lower rate of growth in September at 2% year on year than HM Land Registry found in August.
They point out that price falls in London and the SE need to be seen in a broader context: “For the fifth quarter in a row London prices fell in annual terms, though the decline remained modest at just -0.7%. Indeed, prices in the capital are only c3% below the all time high recorded in Q1 2017 and are still more than 50% above their 2007 levels.” Northern Ireland is still 39% below its 2007 peak.
Building Societies Association Property Tracker – September 2018
This consumer survey found falling confidence in the housing market following the bank rate rise. It should be said though that opinion seems very divided with 28% saying now is not a good time to buy against 24% who said that they think it is.
Raising a deposit remains the most common barrier to property purchase but affordability of mortgage repayments has overtaken access to mortgage finance as the second most significant factor.
Rightmove House Price Index October 2018
Helping to summarise all of this is commentary from Mile Shipside,of Rightmove: “With the government using the tax system to try and help first-time buyers while deterring out-of-favour landlords, prices in this sector [two bedrooms or smaller] have been subdued as intended. That gives aspiring first-time buyers an autumn opportunity to negotiate a favourable deal. The story at this time of year for the last five years has been an average autumn bounce of 1.6% in the price of property coming to market. Whilst all regions have seen a monthly rise, this year has a more subdued narrative with only a 1% uplift as the script has more sub-plots to affect the mood. While the backdrop of political uncertainty and stretched buyer affordability remains the same, this month has price drops at the bottom of the market dragging down the national average.”
BUDGET 2018 (29th October, 2018)
The OBR becomes a bit more optimistic on growth…
• GDP growth forecast cut this year, reflecting temporary effects of snowy first quarter
• But economy is then expected to see a slightly faster expansion than expected in March
• This reflects a more optimistic view of how far unemployment can fall and rising participation in the labour force
• But projections imply growth below 2% for 8 years in succession – unprecedented in post-war period
…delivering a sizeable reduction in borrowing, pre-measures…
• Borrowing is expected to run at 1.2% this year, down from 9.9% in 2009-10 and the lowest since 2001-02
• Forecast deficit in 2018-19 cut by £11.9bn to to £25.5bn, reflecting strength in tax receipts and lower-than expected spending
• Size of improvement suggests GDP may be bigger than believed
• On a pre-measures basis, deficit would have been eliminated by 2023-24
…but ‘giveaways’ absorb most of underlying improvement…
• Extra spending on NHS absorbs most of forecast improvement in borrowing – £7.4bn this year rising to £27.6bn in 2023-24
• Smaller spending boost to some other departments
• Tax cuts – accelerated rise in personal allowance, freeze on fuel duty
• Extra spending on Universal Credit
• So a surplus of £3.5bn in 2023- 24 pre-measures becomes a deficit of £19.8bn post-measures
…implying an end to austerity (sort of)
• Spending boost means that day to-day expenditure will rise by an annual average of 1.2% in real terms in 5 years from 2019-20
• In comparison, 2010 Spending Review saw annual real cuts averaging 3% and, in the case of the 2015 SR, annual average reductions of 1.3%
• But size of extra NHS spending implies no real-terms gain for other departments, and reductions once overseas aid and defence are excluded
• As set out in the Autumn Budget 2017, and now confirmed, the time limit to file a Stamp Duty Land Tax (SDLT) return and pay the tax due will reduce from 30 days after the effective date of the transaction to 14 days. The limit will apply to transactions to purchase land in England and Northern Ireland, with an effective date on or after 1 March 2019.
• Extension of SDLT first-time buyers relief for shared ownership properties < £500,000 (England and NI) – this was done to correct an anomaly under pre-existing rules
• From April 2020
o Private Residence Relief final period exemption to be halved from 18 months to 9 months
o Lettings relief (£40k) to be restricted to those homeowners in shared occupancy with tenant
• 1% SDLT surcharge for non-residents (England and NI)
• Criteria for applying business rates rather than council tax to self-catering and holiday lets
The chancellor announced a number of measures he said were to help “fix our housing market”. These included:
• Help to Buy extended but with regional caps
• Help to Buy equity loan which was due to end in April 2021 extended to 2023 in England but for first time buyers only
• The extended scheme will be more restrictive with a regional cap on the amount being introduced based on the predicted average house price for first time buyers in each region of England
• A further £500m for the Housing Infrastructure Fund, to unlock 650,000 homes.
Finance Bill 2019
On 6 July, draft clauses for the Finance Bill 2019 were released, including
• Property tax
o UK tax on gains made by all persons regardless of residence (limited exceptions) on direct or indirect disposal of immovable property
o Corporation tax on property income and gains of non-UK resident companies
Timings of Next Steps
• Finance Bill 2019 to be released on 7 November 2018
• Royal Assent to Finance Act 2019 in Spring 2019
• Draft clauses for Finance Bill 2020 expected Summer 2019
• Spring Statement due in 2019
Beyond saying there was a “failure to invest in housing” there was no mention of housing in the Leader of the Opposition’s response to the Chancellor. In advance the Shadow Housing Secretary (John Healy) stated that “We can’t help those who are homeless if we don’t build the homes, which is why Philip Hammond must use the budget to back Labour’s plans to build a million genuinely affordable homes over the next 10 years.” In an article in the Guardian following the Budget Mr Healy argued that “The Conservatives can’t fix the country’s housing crisis because their basic political beliefs prevent them from doing so. … If the Conservatives can’t fix our housing crisis, then a future Labour government must.” This budget shows Conservatives have run out of ideas on housing, Guardian 30 October 2018