Key Points
- House prices increased by 1.6% in February and annual house price inflation now stands at 17.8%.
- The two bank base rate rises since November have had a modest impact on housing affordability, raising mortgage payments as a percentage of earnings from 13.9% to 15.5%. The proportion of mortgage payments to earnings however, remains well below the long-term average of 21%.
- Despite a 5% increase in housing completions in England last year to the highest level since 1997, housebuilding remains very low compared with previous decades and is failing to keep pace with the projected rise in the number of households over the next 20 years.
- Just two weeks before the Budget (17th March), Halifax research shows that the government's failure to increase tax thresholds in line with house price growth has led to a significant increase in the number of properties potentially subject to inheritance tax. Over the last year, we calculate that the number of properties valued at more than the Inheritance Tax threshold (currently £255,000) has increased by 390,000 to 1.94 million with more than two-thirds of the rise in areas outside London and the South East.
- In a similar vein, the average first-time buyer (FTB) now pays more than £1,000 in stamp duty, equivalent to around 6% of their deposit or around two weeks of their annual income. In 1993 the typical FTB paid no stamp duty, except in London. In 2003, for the first time, the average FTB in every region in the UK paid stamp duty.
ABOUT THE HALIFAX HOUSE PRICE INDEX
The Halifax House Price Index is the UK's longest running monthly house price series with data covering the whole country going back to January 1983. The Index is typically based on around 15,000 house purchases per month, and covers the whole calendar month. From this data, a "standardised" house price is calculated and property price movements on a like-for-like basis (including seasonal adjustments) are analysed over time. Properties over £1 million are included and the index is seasonally adjusted with the seasonal factors updated monthly.
Commenting, Shane O'Riordain, General Manager, Group Economics, said:
"House prices continued to increase in February with a 1.6% rise during the month. The ongoing strength of the housing market is underpinned by the favourable combination of a strong labour market, historically low interest rates and low mortgage payments in relation to earnings.
The government's failure to increase tax thresholds in line with house price growth has led to a significant increase in the number of properties potentially subject to inheritance tax. Over the last year, we calculate that the number of properties valued at more than the inheritance tax threshold has increased by 390,000 to nearly two million.
In 2003, for the first time, the average first-time buyer in every region in the UK paid stamp duty. Ten years earlier in 1993 – the last time the stamp duty threshold was changed - the typical first-time buyer paid no stamp duty except in London. We believe the chancellor should index link (to house price growth) both the stamp duty and inheritance tax thresholds to prevent increasing numbers of homeowners facing higher tax liabilities."
Stamp duty and inheritance tax threshold increases have fallen far short of the rise in house prices since 1993...
The stamp duty threshold (currently £60,000) would have been raised to £143,400 if it had been increased in line with the rise in house prices since March 1993 – the last time that the threshold was increased. On the same basis, the inheritance tax threshold would have been raised to £358,500 – some £103,500 higher than its current level (£255,000).
The average first-time buyer (FTB) now pays more than £1,000 in stamp duty, equivalent to around 6% of their deposit or around two weeks of their annual income. In 1993, the typical FTB paid no stamp duty with London the only region where the average FTB paid the tax. In 2003 the average FTB in every region paid stamp duty.
Inland Revenue statistics show that in 1993 65% of dwellings sales were beneath the stamp duty threshold compared with only 29% in 2002. Our estimates suggest indexing in line with
house price inflation would have saved around 500,000 transactions from stamp duty in 2002.
We estimate that the number of properties that are valued at more than the inheritance tax threshold has quadrupled from 500,000 in 1997 to nearly two million now. Over the last year the number of properties valued at more than the inheritance tax threshold increased by 390,000 with more than two-thirds of the rise in areas outside London and the South East.
More…
Page 3 of 4
Housebuilding up 5% in 2003 but still well short of the level required to meet increasing demand over the next 20 years...
A shortage of supply - both in terms of new housebuilding and second-hand properties available for sale – has added to the upward pressure on house prices caused by high demand. Recent figures from the ONS show that the number of housing completions in England increased for the second consecutive year in 2003, rising by 5% from 137,057 in 2002 to 143,250. This was the highest level of housebuilding since 1997 and, encouragingly, the trend in housing completions in London, the South East and the East has been upward, whilst the trends in the north and midlands regions have remained level. Nevertheless, the level of housebuilding remains very low compared with previous decades and is failing to keep pace with the projected rise in the number of households over the next 20 years.
Property transactions increasing following a 16% fall last year...
According to the Inland Revenue, the number of property transactions in England & Wales increased by 5% in January, after allowing for seasonal factors, to 110,000 from 105,000 in December 2003. Transactions in the three months to January were 1% higher than in the preceding three months, suggesting that the level of activity is now beginning to rise following a 16% fall in 2003.
Accelerating economic growth and rising employment continue to drive high housing demand…
UK economic growth accelerated during 2003, returning to above trend pace at the end of the year, with figures released last week showing an upward revision to the estimate for annual GDP growth in the final quarter of 2003 from 2.5% to 2.8%. This strengthening in economic activity has led to further increases in employment and falls in unemployment. The number of people in employment rose to 28.16 million in the final three months of 2003, 156,000 higher than a year earlier. Unemployment – measured by the claimant count – fell by 13,400 in January to 892,100. These highly favourable economic and employment conditions are a key factor behind the high level of housing demand.
A further substantial rise in buy-to-let also contributes to high demand…
Buy-to-Let investors have also contributed to strong housing demand with the Council of Mortgage Lenders (CML) reporting a 48% increase in the total number of outstanding buy-to-let mortgages last year from 275,500 at the end of 2002 to 408,300 at the end of 2003. Despite this huge increase, buy-to-let lending still represents only 5% of the total mortgage market.
