Getting on the property ladder in Britain right now is incredibly difficult unless you’re rich.
But for ordinary Brits, there is a window of opportunity to buy a home at a cheaper price right now — but you only have until June 23, when the country votes to either stay or leave the European Union in a referendum.
The average house price in Britain now stands at £291,504, according to the Office for National Statistics. Meanwhile, the average London property price is at a huge £551,000.
The Resolution Foundation estimates that median income in Britain is £24,300. Londoners earn around £30,000. This shows the huge gap between earnings and house prices and how much debt you’d have to take on to get a place of your own.
Simply put, there are too many people looking for houses and not enough to go round. This mismatch between supply and demand pushes up prices.
However, it looks like Brits can get on the property ladder at a reduced cost at the moment because the amount of people looking to buy a property in the run-up to the EU referendum is going to wane slightly. That means prices are either going to stop moving up as quickly or in fact reduce — sellers may have to cut their prices to shift their properties.
On top of that, prices are already going to be dampened because there was a property buying frenzy in the first quarter this year due to stamp duty changes. This was a market blip that is over so a big chunk of demand for properties is likely being taken out of the market.
The stamp duty rush
Stamp duty is a tax placed on buyers when they purchase a property in the UK. It is payable on completion of the property and under the new system, introduced in April, works out at an extra £93,750 if you’re buying a property at £1.5 million, according to the government’s stamp duty tax calculator. However, if you’re buying a property for £5 million, you’ll be forking out £513,750 just in stamp duty fees.
If you own more than one property, a 3% stamp duty is applied. This new fee came into force in April and is applicable to buy-to-let investors and those who are buying a second home. This 3% fee is on top of the extra cost of a new purchase in April.
People have been rushing to buy second properties and buy-to-lets over the last few moths before the extra 3% tax came into force. Take a look at this insane chart from Nationwide on Thursday which shows how massive the rush to buy was:
Robert Gardner, Nationwide’s Chief Economist said in a statement (emphasis ours):
There was a surge in the number of residential property transactions in March (which includes mortgaged and cash purchases) ahead of the introduction of the additional stamp duty levy on second properties from 1 April 2016. There were 165,400 transactions in March, an all-time high.
“House purchase activity is likely to fall in the months ahead given the number of purchasers that brought forward transactions. The recovery thereafter may also be fairly gradual, especially in the BTL sector, where a wealth of other policy changes, such as the reduction in tax relief for landlords from 2017 are likely to exert an ongoing drag.
As activity in this sector drags, prices are likely to stagnate or fall.
The uncertainty over the EU referendum
The EU referendum is also going to dampen house price growth.
On Thursday, a massive estate agency LSL Property Services said that the referendum will hit demand (emphasis ours):
We expect that the strong market activity in quarter one will soften in quarter two, caused in part by some caution among both buyers and sellers in the run-up to the EU Referendum on 23 June.
The outlook for the year as a whole continues to be in-line with the Board’s expectations.
On Wednesday, Nic Budden, the CEO of the largest estate agents in London Foxtons said (emphasis ours):
We have had a strong start to the year with a record first quarter driven by a number of sales transactions being brought forward before the introduction of the additional stamp duty surcharge on buy-to-let properties.
Nevertheless, we expect the first half of the year to be challenging with a reduced sales pipeline entering into Q2 and the underlying short-term impact on transaction volumes from the uncertainty around the European referendum.
Our expansion strategy remains on track as we continue to increase our market share in outer London.
And on Tuesday, the UK’s largest estate agency group Countrywide warned of a coming chill in the property market:
We expect the housing market to slow in the second quarter post the surge in buy-to-let activity in the first quarter and reflecting challenges from the political and economic uncertainty in the lead up to the EU referendum in June.
On top of that, the Royal Institution of Chartered Surveyors made a similar prediction recently, saying most surveyors in London expect prices to actually fall over the next three months.
So basically, if you don’t care about whether Britain will leave the EU or not, it is a prime opportunity to get a property for a lower price than it will be in the summer. Buyers are scared and you can take advantage by snapping up a bargain.