2016 Review and Outlook for 2017

Last year isn’t one any of us are likely to forget in a hurry thanks to Brexit, but amidst all the political turmoil, homebuyers and owners enjoyed some of the lowest mortgage rates ever recorded.

Here, we review some of the big changes that affected the property market over the last 12 months, and look at what 2017 could hold in store.

Race to beat the stamp duty surcharge

The start of last year saw thousands of homebuyers rushing to snap up properties to rent out or use as holiday homes ahead of the introduction of the new Stamp Duty surcharge on second homes.

The 3% surcharge, first unveiled in the 2015 Autumn Statement, was introduced on April 1, but anyone who sealed their property deals prior to this date escaped the extra cost.

Brexit shock

Brexit divided opinion and brought huge uncertainty, with many property buyers opting to hold fire on their transactions until the referendum result was revealed in June, amid fears that a vote to leave the EU would see property prices plummet.

Since the vote, however, property prices have remained relatively stable, with many foreign buyers taking advantage of the weak pound and snapping up homes in the UK. According to Nationwide Building Society’s latest house price index, prices rose by 4.5% over the past 12 months, the same rate as in 2015. The building society said that annual house price growth may slow over the coming months, but that a shortage of homes and low interest rates would prop up prices.

The true impact of Brexit remains to be seen of course, with Article 50, which is the formal mechanism which enables the UK to leave the EU, yet to be triggered.

Record low mortgage rates

The Bank of England cut interest rates for the first time since 2009 in August 2016, in a bid to shore up the economy following the Brexit vote. Some of the lowest ever fixed rate mortgages followed the base rate announcement, enabling many homeowners to trim their monthly payments by remortgaging.

This year could see rates rise, however, as swap rates, which are the rates bank pay to borrow from each other, have started to increase in recent months. Swap rates are among the factors which determine at what level fixed rates are set, so the days of rock bottom fixed deals could be numbered as we head into 2017, with some lenders already withdrawing their best deals.

New Year, new opportunities

Although fixed rate deals recently started to tick up, the appetite for lending has kept rates sharp, so there are still plenty of competitive mortgage deals for borrowers to take advantage of.

However, with warnings that inflation, or the rising cost of living, could increase sharply this year, if you’re looking to remortgage or get on the property ladder you may want to act sooner rather than later if you spot a deal you want.

First-time buyer changes
If you’re a first-time buyer, it’s worth noting that the Help to Buy mortgage guarantee scheme is no longer available from 2017.

Under the scheme, you could buy a home with a 5% deposit at favourable rates, because the government would guarantee 20% of your mortgage.

Even though this scheme has now been withdrawn, recent years have seen the number of deals which only require a 5% deposit increase significantly, so there are still plenty of options available.

This April will also see the launch of the Lifetime ISA (LISA), which aims to help first-time buyers get on the property ladder or to save for their retirement, or both. To be eligible to apply for an account, you must be aged over 18 but under 40 on 6 April 2017, and you’ll be able to save up to £4,000 a year into the account, which will be boosted by an annual government bonus of 25%. The bonus will be paid at the end of every tax year until you reach 50 years of age. Funds held in a LISA can be used after 12 months to buy a first home valued up to £450,000.

New buy-to-let lending rules

Aspiring landlords may now find it harder to take out a buy-to-let mortgage, following the introduction of new tighter lending criteria from January.

New rules introduced by the Prudential Regulation Authority (PRA) require lenders to apply more stringent stress tests to ensure that borrowers can cope with their mortgage payments, both now and if interest rates were to rise in the future, as well as the other costs associated with being a landlord. These costs could include repairs, management fees and rental voids.

April will also see tax relief changes start to bite, which will reduce the amount of tax relief landlords can claim on mortgage interest payments. At the moment, taxpayers can claim tax relief back at their marginal rate, so basic, higher and additional rate tax payers can claim relief at 20%, 40% and 45% respectively. This relief will gradually be cut back to 20% for all taxpayers between April 2017 and 2020.

With so many changes happening in 2017, make sure you understand how you could be affected and if in doubt, seek advice so you can be certain you end up with the best deal for your individual circumstances.