House prices rise 10.5% : Demand for Housing Still Strong

New figures from the Office for National Statistics have found that house prices rose by 10.5% year-on-year for the 12 months to May 2014, outstripping the 9.9% rise registered for the same period last year and higher than the 10.2% expected by forecasters. House price inflation continues to outstrip CPI inflation, reaching 11% in England, 6.5% in Wales and 3.6% in Scotland. Prices in Northern Ireland fell by 0.7%. Once again prices in London showed the highest growth with an annual increase in the Capital of 20.1%. Homes in the South East rose by 9.6% and the East by 8.6%. The ONS said homes in London now stand 33.7% higher than their pre-crisis peak.

The data also shows that in May 2014, prices paid by first time buyers were 11.3% higher on average than in May 2013. For owner-occupiers prices increased by 10.1% for the same period. According to the ONS Index, the average price of a house across the UK is now £262,000.

Londoners face stamp duty rise

Separate analysis from the Taxpayers’ Alliance has suggested that London home-buyers could face a 36% jump in their stamp duty bill in the next two months as the average house price in the Capital breaches the 4% property tax threshold. The value of a typical home in London is now valued at £492,000, which places it within the 3% stamp duty banding. This would cost the buyer £14,670 in tax. However, research from the Taxpayers’ Alliance found that if prices rose just 1.7% to £500,364 their stamp duty bill would rise to £20,014, an increase of 36%.

Rory Meakin, research director at the Taxpayers’ Alliance, commented: “Stamp duty gets in the way of homeowners who need to move home for whatever reason as well as first time buyers trying to get on the housing ladder. Ultimately, stamp duty is indefensible and should be abolished but if ministers are reluctant then a meaningful cut is the least they should do to ease the burden.”

Treasury set to collect extra £85m

Additional research from JLL has revealed that the Treasury will collect an extra £85m in taxes just from properties moving across the £500,000 threshold in London, not including the increase at each of the other stamp duty levels as house prices across the country approach the 3% market. Adam Challis, head of residential research at JLL, remarked: “As properties move into higher stamp duty levels, the increasing cost of moving can act as a brake of transactions. Average families will see more value from extending existing homes than moving to a new property. This may be good news for the Treasury, but it is a big problem for activity in the housing market.”

More homes needed

Meanwhile, Rob Perrins, the managing director of Berkeley Group, has warned that the government and the Bank of England are spending too much time fussing over measures that crush demand from aspiring homeowners without doing enough to boost the chronic lack of new homes. Mr Perrins said that the Bank of England’s new rules on mortgage lending were “absolute tosh”, and urged policymakers to concentrate instead on supply. “You’ve got the Bank of England saying house prices are going too high, so we’ll limit demand. Mark Carney indicated that his job wasn’t to increase supply, which it isn’t, but his job is not to limit demand either. Instead of making it harder to get a mortgage, the answer lies in releasing more land to the market, stronger political leadership and focusing on the quality of what gets built,” he said.

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