London house prices forecast to drop 3.6% this year as mansion tax fears and stamp duty hit overseas demand - but rest of the UK will see a small rise
04-15-2015
- CEBR forecasts UK prices to rise 1.5% in 2015 - they rose 10% last year
- London prices to pick up again in 2016 with 2.7% growth, rising 6% in 2017
By Camilla Canocchi for Thisismoney.co.uk
House prices in London are expected to drop this year amid lower foreign demand and uncertainty around the General Election, with the rest of the UK outperforming the capital for the first time in six years, economists predict.
Property prices increased by 17.4 per cent in London in 2014, while across the UK they were 10 per cent higher on average.
But the Centre for Economics and Business Research said they expect the capital to see a 3.6 per cent drop in prices this year as recent stamp duty reforms hit demand from wealthy buyers for houses in the top end of the market.
London top properties: The Cebr forecast prices in the capital to fall this year, but expects a pick-up in 2016
The value of properties across the UK, meanwhile, is expected to rise by just 1.5 per cent in 2015, although this is up from a previous forecast of a 0.6 per cent fall.
That would be the first time since 2009 that national price growth is higher than in London.
The CEBR said the upward revision was down to December’s stamp duty changes, which made the tax cheaper for the majority of buyers, as well as an improving labour market which has boosted consumer spending power.
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Stamp duty changes announced at the last Autumn Statement in December mean that buyers are now taxed progressively above thresholds, in a similar way to how income tax works, instead of being taxed on the whole value of the property from £125,000 upwards.
Under the new system anyone buying a home costing under £937,000 should pay less or the same, Treasury figures show, while those buying homes costing more than £937,000 will face a bigger tax bill.
Those buying a £200,000 home will pay £1,500 instead of £2,000.
The big win though is for those previously caught in the 3 per cent tax trap, someone previously hit with an £8,250 bill on a £275,000 home will now pay £3,750.
The CEBR said that the effect of the reforms had been felt sooner than expected, with some buyers putting the cash saved on the tax towards a deposit.
Cebr economist Nina Skero said: ‘Outside of London, the outlook for house prices this year has improved after a few months when the market appeared to be coming off the boil.
‘December’s stamp duty changes, as well as rising household incomes, are lifting prices in many parts of the UK’.
But she said that in London they expect a price decline driven by a ‘significant’ weakening at the price end of the market, with fears of a mansion tax, stamp duty charges and the strength of the sterling against the euro all hitting demand from overseas buyers.
Prime buyers are likely to be sitting on their hands as Labour party leader Ed Miliband has talked of bringing in a mansion tax, which would hit new owners of properties worth more than £2million should he win the vote.
‘A potential mansion tax, reduced overseas interest and hefty new stamp duty rates have hit demand for high value property,’ Skero added.
London has been the main drive behind house price growth across the country over the past years, but in recent months the capital has showed a slowdown, with fewer buyer enquiries and longer selling times actually pointing to price falls, according to CEBR.
Meanwhile, prices across the UK have been catching up with the capital, as buyers have begun to shift their attention to other cities where properties are more affordable.
The average UK house price now stands at another record high of £192,970 – up another £788 over the past month alone, according to the March figures from Halifax. The average home in London now costs £463,872, recent data from the Land Registry shows.
Cebr said the predicted London price dip will not last for long and by next year, the capital is expected to have pulled back ahead of the rest of the UK once more.
Property values are expected to increase by 2.7 per cent in London and by 2.3 per cent across the UK generally in 2016, while in 2017 the CEBR expects rises of 6 per cent in London and 4.3 per cent across the UK.
CEBR said that the London housing market tends to be particularly affected by the uncertainty of the outcome of the general election - but in the longer term, underlying factors such as economic growth and a lack of housing for buyers to choose from in the capital will push prices upwards.
Economist Scott Corfe, of the CEBR, said: ‘House price growth in the UK will rise much slower than last year – but it will still be positive.
‘The market got a bit ahead of itself last year, and at the end of 2014 it began slowing down and plateaued.
‘It has now started to pick up again outside London. We are still not building enough houses to keep pace with population growth so, as long as we have a shortage of supply, prices will keep rising.
‘House prices will continue to grow faster than inflation.’
Consumer expectations for property price growth across the UK have also been picking up in recent months after declining in October - something that is feeding through into rising consumer confidence in the run-up to the general election, according to the YouGov/Cebr Household Economic Activity Tracker.