The UK economy shows no sign of deviating from its growth trajectory with the independent Office for Budget Responsibility (OBR) now forecasting growth of 3 per cent in 2014 and 2.4 per cent in 2015.
This puts the UK at the forefront of growth forecasts for the western world but there is a cautionary note in that our European Union neighbours, and ultimately our largest trading partners, show little sign of emerging from what has been an economic malaise and, in the worst affected parts of the Eurozone, continuing recession.
As a consequence, if the Eurozone economy does not alter course for the better any time in the near future, it could play a big part in whether the UK growth is tempered in the next year or two.
The General Election, set for May 2015, is currently too close to call in terms of outcome and most commentators believe no single party will command an overall majority.
Once the votes are counted, it seems likely that we may once again have some form of coalition, but this time it is highly likely that several of the smaller parties could hold the balance of power. This could include the Scottish Nationalists Party (SNP) which seems set to benefit with substantial gains from the Labour party in Scotland in terms of the number of seats that they may win in at the Westminster parliament.
The SNP have publically stated that they would not enter into coalition arrangements with the Conservatives but could do so with Labour. The Lib Dems appear to be increasingly falling out with their current Tory coalition colleagues with open public criticism being reined on each other so, although this version of coalition does not look like being repeated in 2015 at present, politicians are pragmatists and power has a habit of changing people’s thinking and forcing compromise when circumstances dictate!
So, does this have any repercussions for the UK housing and mortgage markets? The impending election may subdue the normal seasonal house-buying or moving activity associated with a spring market due to the uncertainty that the election outcome may pose in many people’s minds.
Some buyers may delay any moving plans until the political and subsequent economic policy is more clearly defined, but the market is still anticipating a gross mortgage lending market broadly similar to 2014 of circa £200bn.
The consensus amongst the political parties of all persuasions is of the need to build more homes in the UK and no doubt all will be formulating policy to win our votes in terms of how they propose to go about this.
The concern is that in the event of a hung parliament or a minority government with smaller parties voting tactically on specific policy agendas etc., the country potentially runs the risk of political deadlock with the machinery of government not actually functioning – similarly to what happened in Italy in the past – and, as a consequence, making and implementing policy may become even more difficult.
The recent announcements by the Chancellor in the Autumn Statement around the changes being applied to the Stamp Duty Land Tax (SDLT) were welcomed by the majority in the industry as they introduced a fairer way of applying the tax.
SDLT now works in a similar manner in which income tax is applied, in that you only pay the higher percentage rates on the element above a given threshold and not in the “slab” manner that has been applied until now.
This is forecast to reduce the tax burden and benefit around 98% of home buyers, but it will also cost the Treasury an estimated £800m in terms of the shortfall that will arise.
In addition to benefiting the majority of home-buyers, it should also substantially reduce the number of transactions that are priced just below the former threshold levels which had the effect of large numbers of houses changing hands for £249,999 and £499,999, respectively, which are the principle levels where the tax treatment had the biggest effect, thereby creating a false market at those points where the tax taken previously was most keenly felt.
The Chancellor, having introduced the new charging structure effectively and immediately, also removed the bunching of transactions that has taken place in the past when Stamp Duty holidays or exemption periods have previously been applied.
These have, in the past, been well-meaning in appearing to boost activity for a period, but have inevitably had a detrimental effect on the market once they ceased, as in reality, sales activity is merely brought forward or delayed to benefit the purchaser who stands to gain most from the resultant temporary tax change.