In the main, commentators across the nationals have been claiming a primary driver of this trend being the political headwind we are experiencing against the backdrop of the May election. There are three commonly cited factors which include the impact of the stamp duty changes, the recent Labour manifesto around non-domicile tax and the effect of the mansion tax. Clearly, all three elements of this are overtly political in nature and are fuelling uncertainty and doubt for investors across the prime and central London property sphere.
To step back for a moment and give thought to buying or transacting in central London, it is safe to say that until the various party initiatives crystallize into policy in May, such key investment activity may well grind to a halt with overseas and offshore investors showing particular concern. The market has been nervous about this for the last 6-9 months with the mansion tax a well sign-posted initiative, the pursuit of non-domicile citizens being a more recent development, and the stamp duty changes catching many by surprise to cast somewhat of a wet blanket over the ‘engine’ of the UK property machine. In fact, the fall in transactions across the prime London area by almost a quarter in Q1 2015 is a phenomenon many attribute to the stamp duty changes introduced at the end of last year. Across some 640 prime transactions, stamp duty receipts were down from £125,000,000 to £90,000,000 for the same period in 2014.
So what do we feel this looks like for the industry? Potentially we may see some of the bridging loan and development finance portfolio lenders becoming increasingly nervous about the impact of the current climate on their back books given the lending activity of the last 12 months. Outside of these markets, where the sales market/general liquidity and transaction activity is key to repayment strategies, will we see a possible knock on effect into the BTL market? In all honesty, given the stamp duty changes are relatively favourable for lower value properties thereby insulating the vast majority of the BTL market, any impact on the sector in this regard is likely to be fairly minimal. It is however worth raising the importance of the political forces at work where property markets are concerned. At the time of writing I am watching the latest TV debate where rent controls, mandatory 3 and 5 year tenancies, restrictions on landlords buying are amongst the many sound bites.
It is well known that markets hate uncertainty, and we must remain alive to the possibility of the property market and landlords becoming a “political football” in the run up to May. Whilst the Prime Central London market has certainly suffered as a result of political moves, it is not yet evident that the more mainstream markets are being affected. However the experience in the PCL sector is a very real reminder that political intervention can have far reaching consequences. See you after the election...
