Chesterton Humberts/cebr May House Price Poll of Polls highlights

15 June 2010

• Removal of stamp duty for properties under £250k sees terraced house prices grow at twice the pace of any other property type

• With the exception of two or three regions –the fast growing house prices are in regions with the lowest government spending share of gross domestic product

• The five least expensive property areas have nearly twice as many public sector employees as most expensive five

With the government’s Emergency Budget due on 22 June 2010, we are being prepared for a period of steep fiscal retraction by the ruling coalition with the sharpest cuts in public spending likely to take place during the first three years, while it is politically viable. The austerity measures are likely to hit hardest house prices in those parts of the country with high public spending and high public sector employment.

As such, the month’s Poll of Polls focuses on the regional variations in this report. House prices appear to be relatively stable as we wait to see what parts of the coalition parties’ manifestos make it into the Budget.

Scrapping Home Information Packs has reduced the cost of selling homes and will continue to encourage more sellers into the market, while increases in capital gains tax will further discourage demand for second homes and buy-to-lets. 

The impact of future budget decisions remains uncertain but the scrapping of stamp duty on homes under £250,000 for first time buyers by the previous administration appears to have contributed to the price of the cheapest property type, terraced housing, growing at twice the rate of the national average this month.

Robert Bartlett, Chesterton Humberts’ CEO, comments:

“Regional disparities within the housing market are becoming more and more pronounced as the prospect of severe government cut backs now become a reality. Even within London, these imbalances are evident, as the prime areas in Central London continue to enjoy the overseas feeding frenzy resulting from the continuing weakness of the UK£ and the fear of investment within the Eurozone, while boroughs on the extremities of London are faring less well.

“Good quality properties right across Southern England are still selling well, although most buyers are looking to secure properties at below the guide price, as the perception is that the lack of stock has forced too many properties to come to the market at unrealistic prices. There will clearly be disappointed vendors who have been told one price, but who will achieve something different.

“Short term prospects for the market are uncertain. The Budget later in the month will clearly be the harbinger of some bitter medicine and the uncertainty over CGT has many potential property investors questioning whether this is any longer a worthwhile asset class – but I can’t think of a better one in these times of low interest rates, but potentially longer term (3 – 5 years hence) inflation. Low interest rates and the lack of pressure on them going up, will no doubt be the key driver in the market place. A combination of the UK£ remaining weak and low interest rates will serve the London market well and this growth will continue spreading across the majority of southern and middle England”.
 
Douglas McWilliams, Chief Executive of CEBR, comments:

“The budget on 22 June is likely to announce major cuts and some tax increases. We are not expecting tax increases on housing as such – stamp duty was adjusted only last March and it appears that the Lib Dems’ mansion tax has been scrapped as part of the coalition agreement. The projected rise in capital gains tax will probably apply to second homes and buy to lets but there may be a taper. Work on the assumption, however, that there will be a rush to sell for a short period as people try to beat the start date whenever it is.

“Overall public spending is likely to be squeezed sharply and this will hit jobs and earnings levels in the public sector. This is likely to affect the demand for housing while it happens, especially in the regions where public spending is highest.

“On the other hand, the reduced budget deficit will put downward pressure on interest rates.

“On balance, though the effects are likely to be mixed, the net impact of the lower interest rates is likely eventually to dominate and therefore over a two or three year period prices should be supported by the tight budget.”

See full report here.