This year has seen the lowest number of homes for sale for 10 years, according to the Halifax. As such, buyers have had far less choice than since the 2007/2008 credit-crunch but in stark contrast to that time, the property market has remained active resulting in house prices increasing by 2.5% in the year to the end of September, with the average home now costing £225,995.
The biggest regional rise in house prices was in the Yorkshire and Humberside area, which saw an annual growth of 5.8% in the third quarter of the year.
The consequence of this, research suggests about 40% of young adults cannot afford to buy one of the cheapest homes in their area even with a 10% deposit.
The Institute for Fiscal Studies states that house prices in England have risen by 173% over two decades, whereas the average pay for 25-34 year-olds has grown by just 19% over the same period. In addition, increases in rental costs have made it harder for those buyers moving away from the rental market to save for a deposit.
In 1996, 93% of those with a deposit who borrowed four and a half times their salary could purchase a home but that fell to 61% in 2016.
The think tank, Onward has suggested that the government should reward private landlords who give long-term tenants the chance to buy their home, with 100% capital gains tax relief if a landlord sells to a sitting tenant who has lived there for three years. Under the Onward plan, the landlord would be eligible for tax relief with the windfall split equally with the tenant, who could use it as part of their mortgage deposit. The Treasury is considering the proposal but has not made any statement in respect of this.
The Institute of Fiscal Studies has commented that without increasing supply, policies to help young adults get onto the housing ladder will simply continue to push up house prices and potentially rents too. Instead, they blame planning restrictions, such as within the Green Belt, preventing the construction of new homes in response to demand, for the increase in property prices.
In addition, whilst the Residential Landlords Association has welcomed the idea of lower taxation on private landlords, it said landlords would prefer to get tax relief on rent from long-term tenancies or a refund of Stamp Duty Land Tax. It has stated that Onward is wrong in its call for landlords to disinvest from the sector.
It is clear from the response to Onward’s plan that this is not a simple problem to solve. The IFS believes that property prices can only be reduced by increasing supply and the RLA believes offering landlords Capital Gains Tax relief will only benefit those landlords who have thus far been put off selling their investment properties for fear of the subsequent tax bill and that the property market would benefit from more people renting.
One thing is clear, if the property market continues to follow its current trend, it will become increasingly difficult for first time buyers to get onto the property ladder which will eventually impact on the rest of the market. The Treasury are aware of this problem so it will be interesting to see what, if any steps, it takes to address this.
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