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THOSE disposed to taking the gloomy view about British residential property prices need look no further ahead than April.

  This is the month when mortgage interest tax relief drops from 20 per cent to 15 per cent.

  Mortgage interest tax relief has for many years been the indispensable prop keeping prices aloft.

  More than any other factor, tax relief has given Britain one of the highest percentages of owner occupation in Europe.

  In the opinion of the government, however, tax concessions of this sort are increasingly difficult to justify, and in any case have outlived their usefulness.

  Rather than achieving the aim of making homes more affordable to those with modest incomes, they serve merely to inflate prices artificially.

  No one thinks that the reduction to 15 per cent will be last of the matter. The intention, it is widely believed, is to phase out tax relief altogether.

  How should the overseas investor view this development? The answer is that it depends entirely on the cost and location of the property they may be considering.

  For those interested in prime sites in central London, a market which continues to be a law unto itself, the effect will scarcely be felt.

  Outside the choicest London locations, however, it could be a different matter. These are the areas in which the influence overseas buying remains slight.

  As prices are determined almost entirely by domestic buyers, anything that hits at confidence is bound to have an impact on prices.

  The reduction from 20 to 15 per cent will not, in itself, cause a sudden drop in the price graph.

  But when confidence among potential home buyers remains weak, it could be one additional factor preventing a return to buoyancy.

  Nevertheless, the prospects in the longer term remain encouraging.

   Affordability is high, inflation is low, and the country continues to put memories of the recession behind it.

  No one doubts what a substantial rise in residential prices is on the way, but the question of when remains unanswered.

  Some forecasters writing in Britain's property press have suggested that no general return to vigour can be expected before next year.

  Others declare the turning point will come in the second half of this year.

  Despite the uncertainty, there is widespread agreement that little change can be expected in the next few months.

  For investors, this may represent a window of opportunity that should not be ignored.

  After April, when the effects of tax relief changes become clear, a different situation could emerge.

  Should the consequences for prices be less than feared, the reduction to 15 per cent could paradoxically kick-start the market.

  If prices can weather a storm such as this, it will be argued, then perhaps confidence really is returning.

Alan Lester is a partner of Fisher, Leung & Co, an accounting firm with offices in Hong Kong and London, and a special interest in property investment.



Phasing out of tax relief leaves analysts guessing