As we move into 2020 – what are the likely developments in the housing market? Kevin Gray, CEO Bath Building Society
At the time of writing this article, the country was in the closing stages of the general election campaign. All political parties are united in saying that we need more houses to be built albeit they do differ greatly on where the priority for new housing should be given.
The Labour Party intends to focus on building new council housing, imposing rent controls in the private lettings market and introducing new taxes on second home ownership. Although these policies might be very good for renters and for those seeking a council house, they could potentially make things more difficult for those seeking to buy a house, those who are private landlords and those who have a holiday bolthole.
The Conservative Party intends to build 200,000 new homes per annum, mainly in the private sector plus make it easier for tenants to buy equity in their housing association homes.
The Liberal Democrats are promising 300,000 new homes per annum including 100,000 social homes for rent. Lots of promises have been made by all with regards to increasing the supply of new housing, but delivering on house building targets has always been the much more difficult bit, especially given the fact that the country appears to be very short of skilled construction workers and it takes time to put that right.
For those who are lucky enough to already own property, the likelihood is that values will continue to grow over 2020, albeit slowly. For those seeking to buy, some familiar constraints will remain in place. A recent survey by the Building Societies Association has indicated that 62% of people find raising a deposit to be the single biggest barrier to home ownership. The second biggest hurdle is mortgage affordability where 41% of people struggle to qualify for sufficiently large enough loans to enable them to buy their dream properties. Any difficulties that aspirant borrowers might have will not be helped by the outgoing government’s recent withdrawal of the Help To Buy ISA or the planned withdrawal of the Help To Buy scheme itself in 2023. Although the scheme has been criticised for potentially inflating new build property prices, the presence of a 25% equity loan, which is interest free for five years, has helped hundreds of thousands of people possessing deposits of only 5% to obtain properties of their own. I predict that Lifetime ISAs will become increasing popular with the 18-40 age group to save for their housing deposits, and I predict the growth in peer to peer lenders who are willing to finance deposits by way of side loans. This will help borrowers with the deposit issue but not with the affordability test. I also predict the emergence of an increasing number of equity loan providers in the marketplace.
With the reduction in the ability of private individuals who let property to offset mortgage interest and charge costs against their rental income, I predict that the number of individuals continuing to directly let property will reduce. On the other hand, I predict an increase in the number of landlords who will incorporate their businesses in order to maintain the tax advantages of operating under a corporate structure. I also predict an increase in private individuals choosing to preserve tax advantages by letting their properties on a holiday let basis rather than on Assured Shorthold Tenancies.
Intense competition amongst mortgage lenders continues to force down the rates charged on mortgages. For borrowers whose mortgage product periods are coming to an end in 2020, there is every likelihood that their roll over products will be cheaper. Predicting the future path of the Bank of England base rate, against which lenders set their mortgage and funding rates, is a hazardous profession. However, I am going to stick my neck out and say that I think that the base rate will remain on hold throughout 2020!
2020 is a new year…but only time will tell as to whether it will be a happy one for the property market and for those seeking housing. Bath Building Society aims to change people’s lives by making their dreams of home ownership a reality.
If you would like more information on what the Society could potentially do to help you or members of your family, then please contact us on 01225 423271 or via the website www.bathbuildingsociety.co.uk