A bad year for London – and landlords

The past year may be remembered as one in which London property finally faltered in its one-way ascent, while the government put more nails in the coffin of buy-to-let. It was also a year in which the shameful exploitation of buyers of new homes hit the headlines, while first-time homeowners got a helping hand that will turn out to be nothing of the kind. Below, we review the biggest residential property stories of the year.

House prices march on

October wasn't a good month for London property. Prices in the capital fell for the first time year-on-year since the financial crisis. London was also the worst-performing region in the country for the first time since 2005. But the UK market as a whole remained fairly stable. The annual rate of house-price growth has stayed within a 2%-4% range since March, according to the latest house price index from Nationwide. The average house will now cost you £209,988, says Nationwide, up 2.3% from January.

An empty gift for first-time buyers

The axeing of stamp duty for first-time buyers probably garnered the most headlines of any of the announcements in November's Budget. Philip Hammond announced that first-time buyers would no longer pay stamp duty on the first £300,000 of any home costing up to £500,000.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

The change should save £1,640 in stamp duty for the average first-time buyer buying a £210,000 property. Unfortunately, the Office for Budget Responsibility reckons house prices will go up by 0.3% over the next five years as a direct result of the cut, as prices tend to go up to the level that people will be able to afford.

Leaseholders left behind

"Fleecehold" firmly established itself in the national consciousness over the past year. Homeowners' campaign groups originally drew attention to the controversy, which involved owners of flats and some new-build houses locked into leasehold agreements containing onerous ground-rent clauses. In some agreements, ground-rent charges are set to double every 25 years (the oft-quoted example was of a ground rent starting at £250 per year that would reach £69trn by the end of a 999-year lease).

Where homeowners tried to buy their freehold from the freeholder, they then often found that the developer had sold it on to a professional ground-rent investor, who had since jacked up the price. The government has proposed a ban on the sale of houses as leaseholds in England and the introduction of restrictions on ground rents.

There was also growing and long-overdue scrutiny of the shoddy quality of many new-build homes. Buyers have been left in properties with faulty wiring or drainage systems, or unable to move in at all. The government says it will also consult on the quality of new-build homes in 2018.

Landlords feel the pinch

Finally, it's been another bad year for buy-to-let landlords, following a tough 2016 in which the government introduced a higher rate of stamp duty on second homes. Last April saw the start of a progressive reduction in tax relief for interest on mortgage payments. Landlords can now fully offset just 75% of their interest payment against rental income, with the remaining 25% only available as a basic-rate tax reduction. By 2020, the entire payment will only be available for relief at the basic rate.

Meanwhile, the Bank of England has also put in place stricter affordability rules for portfolio landlords (those that own four or more mortgaged buy-to-let properties) meaning that lenders now have to look at the financial viability of every property in a portfolio when deciding whether or not to grant a mortgage, rather than looking at overall accounts. Monthly rental income now also needs to cover 125% of landlords' monthly mortgage payments, stress-tested at an interest rate of 5.5%. None of this bodes well for a renewed boom in buy-to-let.