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summer 2010 Sherborne SALES INSIGHT Knight Frank Michael de Pelet Office Head, Knight Frank Sherborne +44 (0)1935 812 236 [email protected] Michael de Pelet, Head of Knight Frank's Sherborne office, brings you Knight Frank's response to the recent emergency budget and what it means to you. CGT was always going to be the main story from this budget. In reality the rise to 28% for higher-rate tax payers is a non-issue for the housing market. The rise came into play overnight, meaning that there will be no sudden sell-off of second homes or investment properties. The new rate effectively takes us back to a level last seen under the pre-2008 rules, when taper relief enabled a 40% headline rate to be reduced to 24%. With higher-rate CGT at 28% the argument for property investment still looks strong, and capital gains still compare very favourably with income tax at 40%. Very early evidence suggests that the second-home market, which was very strong up until the CGT rise was first mooted in May and which then promptly stalled, will kick back into life very rapidly. We experienced a noticeable upsurge in calls to our second-home teams in the hours after the Chancellor sat down. It was noticeable that the Budget contained strong GDP growth forecasts for 2011 and 2012. The inference from this is that the Bank of England will be encouraged to maintain a very loose monetary policy well into 2011, if not longer. This requirement to offset fiscal tightening through monetary policy, suggests that interest rates at their current levels could well be maintained for longer than was previously thought likely. This will underpin house prices and also contribute to ongoing low supply in the market as potentially distressed owners are protected by low mortgage payments. With the imposition of the new 20% VAT rate being delayed until January 2011, the risk that this change might add to inflationary pressures is reduced considerably. The housing market was thought to be at significant risk from measures in this budget. In reality the changes announced seemed to be carefully considered, and the certainty created by the announcement will serve to underpin the market. Total property for sale Table 1 Market activity Last 3 months, year-on-year change Sales 12% 200% Sherborne at a glance Page 1 of 2 "Very early evidence suggests that the second-home market, which was very strong up until the CGT rise was first mooted in May, will kick back into life very rapidly" Figure 1 What do our buyers want to spend? New applicants, last 12 months Figure 2 And where do they come from? Buyer locations, last 12 months 17% 12% 4% 12% 32% 24% < £500k £500k to £750k £750k to £1m £1m to £1.5m £1.5m to £3m £3m + 32% 8% 51% 8% Home Region London Rest of UK International Property valued for upcoming sale 50%

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Page 1: summer 2010 Sherborne SALES INSIGHTsummer 2010 Sherborne SALES INSIGHT Knight Frank Michael de Pelet Office Head, Knight Frank Sherborne +44 (0)1935 812 236 michael.depelet@knightfrank.com

summer 2010

Sherborne SALES INSIGHTKnight Frank

Michael de PeletOffice Head, Knight Frank Sherborne +44 (0)1935 812 236

[email protected]

Michael de Pelet, Head of Knight Frank's Sherborne office, brings you Knight

Frank's response to the recent emergency budget and what it means to you.

CGT was always going to be the main story from this budget. In reality the rise to 28% for higher-rate

tax payers is a non-issue for the housing market.

The rise came into play overnight, meaning that there will be no sudden sell-off of second homes or

investment properties. The new rate effectively takes us back to a level last seen under the pre-2008 rules,

when taper relief enabled a 40% headline rate to be reduced to 24%.

With higher-rate CGT at 28% the argument for property investment still looks strong, and capital gains still

compare very favourably with income tax at 40%.

Very early evidence suggests that the second-home market, which was very strong up until the CGT rise was

first mooted in May and which then promptly stalled, will kick back into life very rapidly. We experienced a

noticeable upsurge in calls to our second-home teams in the hours after the Chancellor sat down.

It was noticeable that the Budget contained strong GDP growth forecasts for 2011 and 2012. The inference

from this is that the Bank of England will be encouraged to maintain a very loose monetary policy well into

2011, if not longer.

This requirement to offset fiscal tightening through monetary policy, suggests that interest rates at their

current levels could well be maintained for longer than was previously thought likely. This will underpin

house prices and also contribute to ongoing low supply in the market as potentially distressed owners are

protected by low mortgage payments.

With the imposition of the new 20% VAT rate being delayed until January 2011, the risk that this change

might add to inflationary pressures is reduced considerably.

The housing market was thought to be at significant risk from measures in this budget. In reality the

changes announced seemed to be carefully considered, and the certainty created by the announcement will

serve to underpin the market.

Total property for sale

Table 1

Market activityLast 3 months, year-on-year change

Sales

12%

200%

Sherborne at a glance

Page 1 of 2

"Very early evidence

suggests that the

second-home

market, which was

very strong up until

the CGT rise was

first mooted in May,

will kick back into

life very rapidly"

Figure 1

What do our buyers want to spend?New applicants, last 12 months

Figure 2

And where do they come from?Buyer locations, last 12 months

17%12%4%

12%32%

24%

< £500k £500k to £750k

£750k to £1m £1m to £1.5m

£1.5m to £3m £3m +

32%8%

51%

8%

Home Region London

Rest of UK International

Property valued for upcoming sale

50%

Page 2: summer 2010 Sherborne SALES INSIGHTsummer 2010 Sherborne SALES INSIGHT Knight Frank Michael de Pelet Office Head, Knight Frank Sherborne +44 (0)1935 812 236 michael.depelet@knightfrank.com

summer 2010

Sherborne SALES INSIGHTKnight Frank

60

70

80

90

100

110

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May30

40

50

60

70

80

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

< £500k £500kto £1m

£1m to£2m

£2m to£3m

£3m to£4m

£4m to£5m

£5m +

Charting the market

Figure 4

Days to sale from instructionPrime country property, last 12 months

Your properties, our people

Figure 3

Price change by price bandPrime country property, last 3 months (%)

Figure 5

Average % of guide price achievedPrime country property, last 12 months (%)

Wonderful rural position

Guide price: £1,200,000

Near Dorchester

SOLD5 bedrooms

Views of Glastonsbury Tor

Guide price: £1,250,000

West Pennard

SOLD5 bedrooms

Former rectory

Guide price: £1,850,000

Child Okeford

SOLD6 bedrooms

A piece of history

Guide price: £1,250,000

Stourton-with-Gaspar

SOLD6 bedrooms

Compton Durville

Guide price: £1,250,000

English charm

SOLD8 bedrooms

Norton-sub-Hamdon

Guide price: £795,000

Hamstone house

SOLD5 bedrooms

Michael de Pelet

Head of Knight Frank

Sherborne

Simon Barker

Partner

Ed Cunningham

Partner

Christopher Bailey

Negotiator

Knight Frank Sherborne+44 (0)1935 812 236

15 Cheap Street

Sherborne DT9 3PU

[email protected]

KnightFrank.co.uk

If you have any queries or would like to obtain additional information on the UK or international housing markets please contact: Liam Bailey, Head of Residential Research, +44 (0)20 7861 5133, [email protected]

© Knight Frank LLP 2009 - This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal

responsibility can be accepted by Knight Frank Residential Research or Knight Frank LLP for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the

view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with proper reference to Knight Frank Residential Research. Knight Frank LLP is a limited liability

partnership registered in England with registered number OC305934. Registered office: 55 Baker Street, London, W1U 8AN

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