U.K. Housing Market Entered 2016 With Momentum Undimmed

  • RICS says largest supply jump since 2013 still trails demand
  • Buy-to-let investors seek property before April tax increase

U.K. house-price inflation maintained momentum in January as market activity picked up to its fastest pace in almost two years, according to the Royal Institution of Chartered Surveyors.

A measure of agreed sales rose to its highest since April 2014 as both demand and supply increased, RICS said on Thursday. Its house-price index was unchanged at 49 last month compared with December. A separate report from Acadata Ltd. and LSL Property Services Plc showed values rose 0.2 percent to 290,642 pounds ($420,500) in January, a second consecutive gain.

Low borrowing costs and an improving economy are fueling demand for housing that’s unmatched by supply. While the number of homes on the market was at its highest level since August 2013 in January, residential buyers are having to compete with rental investors trying to pick up property before a tax increase takes effect in April.

“The rise in new instructions in January, although modest, is very welcome,” said Simon Rubinsohn, chief economist at RICS. “However, with buy-to-let investors rushing to get into the market ahead of the stamp-duty hike, the near-term pressure on prices is, if anything, intensifying despite a higher level of supply.”

From April, buy-to-let properties and second homes will be subject to a homebuyer tax 3 percentage points higher than the rate for property to live in. The wealthiest landlords also face the loss of tax relief on interest costs from 2017.

There is evidence that “some existing landlords will look to either gradually scale back on their portfolios or exit the market altogether as the more penal regime begins to bite,” Rubinsohn said.

In a separate report Thursday, the Confederation of British Industry predicted house prices will climb 6.4 percent this year and 2.8 percent in 2017.

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