A headline in the Times this week appeared to speak of a boom in house prices since the general election: “Housing Market Enjoys Boris Boost as Prices Rise at Record Rate”. Given Britain’s history of house price booms and busts that sounded dramatic indeed, so what did it really mean? The ‘record’ which turned out to have been broken turned out to be the change in asking prices – as measured by property website Rightmove – between December and January. This month, the average asking price for a property in Britain is £306,810, £6785 or 2.3 percent higher than it was in December. The previous highest uplift that Rightmove has measured was between December 2014 and January 2015.
That is not as exciting as many estate agents would want you to believe. Asking prices, needless to say, are just that: it is the price that someone is asking for their property, not the price they will eventually go on to receive, if indeed they manage to sell it at all. Anyone can ask what they like for their home; persuading someone to pay that amount of money is quite another. Moreover, there is almost always a sharp uplift in average prices in January because it is a month in which many new properties come onto the market. By December, the housing market tends to be dominated by properties which haven’t sold earlier in the year, often in spite of price reductions along the way. Come January and these are joined by a large number of properties which have just been placed on the market, many of them at ambitious prices.
But all this aside, can we expect a revival in house prices? For the past few years the housing market has been steadier than at any point for decades. Prices in the year to November, according to the government’s own House Price Index, rose by 2.2 percent. Allowing for general inflation, prices are pretty well steady. Brexit, one might say, has achieved what Gordon Brown promised to do but which he laughably failed to deliver: an end to boom and bust.
Markets – of all kinds – do not tend to like uncertainty. So, with Brexit finally being achieved, and the matter of who is in government settled, so it seems, for the next five years, it would not be surprising if some people who were worried about a no-deal Brexit or a Corbyn government, finally decided to make up their minds and say: yes, let’s move house. Moreover, unemployment is at record lows and the interest rate outlook is benign. If there ever was a time to commit yourself to taking on a large mortgage, now would seem to be as good a time as any.
Yet there are good reasons not to expect a housing boom of the type which send prices flying between the mid 1990s and 2007. Changes to taxation have made property investment look a lot less attractive than it was in the early years of this century. Then, vast numbers of people were sucked into the buy-to-let market on a promise of making easy fortunes – while simultaneously making life miserable for young would-be homebuyers. But after years of threatening to do so, the government has finally taken action to steer investors away from the property market. Stamp duty has been jacked up on investment properties – which now attract a rate 3 percent higher than on owner-occupied homes – and even more significantly, investors are gradually losing the ability to deduct mortgage interest payments from their profits for tax purposes. That has made it much harder to break even on a buy-to-let property.
Meanwhile, investors have been gently steered towards the stock market through the increase in ISA allowances. It is rumoured that the Budget will contain measures to remove a disincentive to save large sums in a pension plan. All of which makes me think that if we were to have a boom in anything it would more likely be in UK shares than in the property market. Indeed, the FTSE 100 is already up 7 percent since election day – a good deal more than the ‘record’ rise in house prices.