Britain’s government unveiled a surprise measure in this year’s Autumn Statement — a 3% stamp duty surcharge on people buying second homes. in order to raise more money and curb the amount of affordable houses going to buy-to-let investors.
The measure is meant to raise more money for the government but also to curb the amount of affordable houses going to buy-to-let investors. The idea is that this will increase supply for those who want to buy and go some way to stopping prices spiraling ever upwards.
But according to Liz Martins and her team at HSBC, this is not enough to bring down house prices in 2016.
HSBC says that the government’s surcharge, which comes into effect in April next year, will dent Britain’s house price growth over the next 12 months, but it won’t mean house prices will fall.
In fact, prices will continue to grow in 2016.
Britain is in a severe housing shortage crisis. Basically, there are not enough houses for sale and there are too many people looking to buy. Demand is only being boosted further by the following:
- Low interest rates — rates are still at a record low of 0.5% since March 2009, making money cheaper to borrow.
- Government schemes — programmes like Help to Buy from Whitehall mean people can rustle up just a 5% deposit while the government provides up to 20% of the price of a home. That makes buying a house affordable for a whole new group of people.
For buy-to-let investors, the low interest rate is particularly important. It has created an opportune moment for investment and has led to a surge in lending:
Little supply and high demand is a simple fundamental reason for why house prices rise.
But HSBC says that while house price growth is slowing, measures like the government’s new buy-to-let surcharge and a potential increase in interest rates, is not enough to drag down prices overall (emphasis ours):
Against this backdrop, we may see the pace of activity in the housing market slow in 2016, particularly if rates start to rise, as we expect they will.
That said, monetary tightening is likely to be slow and gradual, and mortgage rates will be rising from all-time lows. And, the market remains under-supplied. So we do not expect prices to fall in 2016 – just for inflation to slow a bit.
Meanwhile, other market experts say that the surcharge won’t do much to stem buy-to-let investors in the long run because the long term investment opportunities outweigh the initial 3% tax rate.
“I expect a rush of investors to complete purchases, but overall a 3% tax doesn’t really make much of a difference over the term of an investment,” Sam Mitchell from property website Rightmove said on BBC’s Radio 4 Today programme this morning.
“In the medium term, I don’t expect a huge effect on the housing market.”
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