Leading accountants and solicitors have commented on a new report from the Royal Institute of Chartered Surveyors (RICS), which has suggested that house prices may fall in certain areas of the UK in the next few months.
It comes after new data from RICS revealed that the number of surveyors expecting prices to drop outnumbered those expecting prices to rise by a majority of 10%.
The Institute said the cause of the decline was most likely due to the uncertainty of the EU referendum and recent changes to the tax system for landlords, a view that was shared by Rufus Ballaster, partner at city-based solicitors firm Carter Lemon Camerons.
“The residential property market has risen to a point where in “real terms” the same home costs today approximately twice what it did 30 years ago. Most of us live in homes we could not today afford to buy.
“The combinations of market cooling tax increases and intense market uncertainty over the outcome of the upcoming EU referendum make a catalyst, which is highly likely to bring about a market adjustment.
“House prices falling always feels like an economic disaster, but maybe they just have got too high and they need to stay still and let inflation pull them down a bit in real terms or they need to drop somewhat off very high levels – in the South East of England at least.”
He added that the South East of England and especially zones 1 & 2 (and increasingly 3 & 4) of the transport for London transport map had significant supply and demand issues historically, which he said developers where trying to combat with massive developments at Elephant & Castle and at Nine Elms.
“If however supply is less than demand (especially if international demand comes back for London residential property as an investment) there is no obvious point at which ‘the bubble must burst’.
“Maybe what feels like the crazy price of homes in central London is a proper reflection of what they are worth when tested as to the best bid available on the market for them and if that demand continues so will price escalation.”
His interpretation of the RICS data was also echoed by Mark Saunders, partner at London-based Wilder Coe LLP, he said:
“Uncertainty in the markets can cause a reduction in house prices – the possibility of Brexit is definitely causing uncertainty.
“The rush to complete purchases before the 31 March deadline for increased Stamp Duty on second homes has also obviously had an impact. If we do vote for Brexit then all the economic experts are forecasting a slowdown in the economy. However, we all know that in the long run property investment is always a safe bet.
“It could be that the uncertainty has merely caused a reduction in the numbers of those seeking to buy and those needing to sell are forced to reduce their asking price. Paradoxically therefore it may just be a great time to buy.”
Russell Black, partner at Glazers Chartered Accountants, also based in London, said:
“It’s probably because the market has over-heated. Buy-to-let investment has had a significant impact on property prices in recent years, especially in London.
“More recently, we’ve seen a number of adverse tax changes, such as the announcement that mortgage interest relief will be restricted, the abolition of wear and tear allowance, stamp duty increases and the Annual Tax on Enveloped Dwellings (ATED) for properties owned by companies etc. These may have reduced the perceived attractiveness of property to some investors or potential investors, and this can affect the market.”
He said that capital gains tax rates had just been substantially reduced, which might also encourage some existing landlords to sell while the rates are low.
“What the last half-century has shown though, is that property price falls are only temporary, and the long-term price trend is always upwards.”