25-10-2007
In the battle for the UK’s property market who will be left standing?
by Rosie Beasley for Simply Business
Not for at least a decade has the property market been in such unknown territory. Residential buyers are increasingly losing ground to the buy-to-let investors – but who will be left standing if the market collapses?
The evidence to date points at the buy-to-let market winning the battle, with the Council of Mortgage Lenders reporting a 37% increase in buy-to-let mortgage applications in the year to August 2007 and no signs of a slowdown.
This shows a stark contrast to the number of residential mortgages taken out in the same period, which fell by 11%.
The government’s pre-budget report, released on 9th October, looks like giving a further boost to the campaign of the British landlord. The new flat rate 18% capital gains tax is great news for landlords who have to date been subject to the three-tiered system – 10%, 20% or 40% depending on their income tax band and the amount of profit made.
It is thought that more landlords might be tempted to sell-up next year with the prospect of making more profit and that this activity in the market could underpin property prices. More people might also be encouraged to become landlords who were previously put off by the high capital gains taxes.
It’s not all good news, however, as some landlords will ultimately still be affected by the closing of many of the tax loopholes. In particular, Taper Relief, which for long-term investors made a significant reduction to their tax bill, will be withdrawn in the April Budget.
Taper relief was also a saver for those with holiday lets, who will now also lose out with the new Capital Gains rate. Where previously they would have been paying 10% or less after 2 years in business, they now face an 8% increase.
It is unlikely that first-time buyers will have any sympathy for either holiday home owners or landlords. Based on recent figures from Money Supermarket, the number of first-time buyers enquiring about buying a property has fallen by a fifth from 20% to 16% over the last 6 months (March - September).
It is debatable though, as to whether they are being squeezed out by investors and other buyers like many commentators suggest. The residential market seems to be slowing down significantly anyway and first time buyers may simply be waiting for a crash (or at least a significant fall in prices) to happen in order to pick up a bargain and avoid the possibility of falling into negative equity.
It is likely that this new generation of first time buyers has learned valuable lessons from the effects of the last property market crash in the nineties, where it was those who waited until after prices had hit rock bottom to buy, who truly came out winners.
Though the property market is uncertain and no-one knows for sure which way it will turn, it is in the end likely to be those residential home-owners already climbing the property ladder who would yet again take the brunt of the fall-out from a crash. In the meantime the country waits to see whether the market will confound the experts once again and pick itself up.
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