Financial services: Predictions for the coming year
2016 was not the smoothest time for the financial services sector, and many of the key things that shook the economy – such as the UK voting for Brexit and the US electing Trump as president – have just begun. 2017 is therefore starting off with a great deal of uncertainty in the air, but nonetheless, there are a few predictions for the year ahead that can be made with a fair level of confidence.
Property prices are set to keep growing through 2017, but this growth is not likely to equal the levels that the market has recently been accustomed to. Rather, growth is expected to steadily slow over the months ahead, with demand falling as a result of similarly-slowing economic growth and financial pressure on buyers. Current forecasts suggesting the overall residential increase for the year will be somewhere in the 1-4% range with one source, Halifax's UK Housing Market Outlook for the coming year, identifying a “higher than normal degree of uncertainty” as the reason for this relatively wide range.
While overall demand is expected to fall, first time buyers may be one key group to defy this trend and to keep on buying homes. This would not only run counter to the overall market, but would also be in spite of adverse factors such as an expected rise in mortgage rates and the end of the Help to Buy scheme. Opportunities in the market as demand falls off elsewhere, may well be too much for first time buyers to resist, especially as some experts predict that a desire among lenders to stimulate this section of the market will see the continued availability of 5% deposit mortgages even after Help to Buy ends.
November saw inflation hit 1.2%, and is now believed to be on track to hit the Bank of England's target figure of 2% before we are halfway through the year. Many forecasters are expecting that this will lead to a rise in the Bank of England's base rate sooner than would have previously been expected. Many therefore predict that 2017 will see a rate increase, with 0.75% being a common prediction among those willing to put a specific figure to the rate we can expect by the time the year is out.
The fast-growing buy-to-let sector has some tough times ahead, with reforms to the way such investments are taxed set to roll out over the next few years. 2017 will see the beginning of one of the most important changes, the cutting of tax relief on mortgage interest for landlords who pay the higher rate of tax. Partly as a result of these changes, many lenders are tightening their criteria for granting buy-to-let mortgages, with many others likely to follow suit and the possibility being discussed of backing up such changes with legislation. The buy-to-let sector is already slowing down, and against such a harsh backdrop this trend is widely expected to carry on over the course of this year.
About the author
Javeed Baig is a senior accountant and managing director of Gower Accountancy, a Leicester based accountants who provide their services to a range of sectors from doctors and dentists to the motor trade and website developers. They have built a great reputation on their high quality personal and professional service.
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