London’s property: a Covid-19 Q&A
With London in lockdown, hospitals braced for the full impact of Covid-19, and the world waiting anxiously for the pandemic to pass, the property market has ground to an almost complete halt. Our thoughts – and likely those of most of our readers – are primarily with family and friends, those working within the health service, and those who are ill, at risk, or who have lost loved ones.
However, some of our clients find themselves mid-transaction. Others are concerned about existing rental properties or want advice about the implications of the pandemic for future transactions. Below, we have sought to answer some of these most pressing questions, with the help of some of the network of advisors with whom we work to help meet clients’ financing, surveying and legal needs.
In line with government requirements, we are all working remotely and maintaining social distancing. However, we are all available by phone or email to discuss any issues or concerns.
I’m thinking about buying a property: are viewings still taking place?
A number of estate agents are assuring clients that it remains ‘business as usual’, and that virtual viewings can replace physical visits. We would strongly disagree. For a number of obvious practical reasons, the London property market is effectively on hold for the duration of the lockdown.
Specifically, guidance from the government, issued on 26 March, said that “there should be no visitors to your home”, including property agents, Energy Performance Certificate assessors, and prospective buyers. We would advise that it would be unwise to proceed with an acquisition based on virtual viewings alone, and prospective buyers should understand that surveys and valuations will be difficult if not impossible for the duration of the lockdown.
What’s happened to the mortgage market?
In theory, the Bank of England’s decision to cut rates to a historic low of 0.1% should be good news for borrowers, but there is evidence mortgage providers are responding to the Covid-19 pandemic with understandable caution.
Chris Dawe, CEO of London Mortgage Partners, notes that most lenders have withdrawn tracker products, increased interest rates on fixed mortgages, and/or restricted lending to relatively low loan-to-value applications, reflecting reduced appetite to lend.
“The lending climate is currently changing by the hour,” he says. “Some lenders are claiming it is ‘business as usual’ whilst others have completely retracted from lending until further notice. With regards to new purchases, the main issue facing the market currently is the logistics of facilitating the mechanics of the transaction.”
We’ve found a property and agreed a price: should we go ahead?
There are enormous questions about the likely impact of the pandemic and the resulting economic hiatus on property prices. Dawe notes the blanket ban on physical valuations at present, which complicates financing. A further obstacle is the announcement by Thames Water that it is suspending property searches to focus its resources on water supply and wastewater services. Lenders will tend not to lend without such a search.
Jon Winn, of surveyor Walter Winn, says that, for surveys conducted before the lock-down, the Royal Institute of Chartered Surveyors is advising its members that “the guidance is to report there is a high degree of uncertainty with the opinion of value reported … There is now a high likelihood of the agreed price not being achievable in say three- or six-months’ time.”
Camilla Dell, Managing Partner at Black Brick advises that the decision to proceed or not with a property purchase negotiated pre-Covid 19 but is yet to exchange contracts, depends on a number of factors. “For example, was the the price agreed at the time considered to be a good deal? How motivated is the seller and would they be open to a re-negotiation on price?” she says.
For an investment property, prospective buyers should stress-test the numbers, she advises. “What would happen if the property is vacant for three months or if the expected rental income is 10% less?” she asks.
“If the property being purchased is your ideal home, ask yourself if you are willing to lose the transaction by trying to re-negotiate with the vendor,” she continues, although she notes that many vendors are choosing not accept offers at the moment as they are concerned about how hard it might be to find their onward property to purchase and to raise finance.
“Ultimately the decision whether to proceed or not, or whether to re-negotiate on price, will vary from case to case,” she adds. “Ultimately, it might make more sense to temporarily pause a transaction than try to rush into an immediate decision.”
We’ve exchanged contracts. Can we complete?
Sarah Conway, head of real estate at law firm Maurice Turnor Gardner says that Law Society guidance is that standard conditions of sale remain in place: “This means that the completion date set at exchange is binding and, if either party fails to complete, then the non-defaulting party can serve a notice, making time of the essence of the transaction.”
She notes that her practice has completed on a number of deals since lockdown, ensuring that properties are vacated in good time, and that the move doesn’t involve social contact.
However, she stresses that “health and wellbeing are the top priority” and she – and the Law Society – “encourage all parties to be collaborative and seek to find pragmatic solutions.” For example, if a seller is self-isolating and cannot vacate the property, then the buyer might not seek to terminate the contract but instead extend the completion date.
“While the technical contractual position remains as normal, it is very likely that the Courts would look to assist a seller who was in default for this reason,” she adds.
(Conway also stresses that her advice here is a general summary and should not be relied upon as definitive legal advice. Instead, buyers (and sellers) should speak to their conveyancer in all circumstances as the circumstances of each case will be different, and information may have changed or may change at short notice.)
Again, the government advice is that there is no need to pull out of transactions, and there is no reason that purchases of vacant properties should not proceed. However, where the property is occupied, it is advising parties to agree alternative dates to move, when stay-at-home measures are lifted.
I have a property in London that I’m unable to visit. Will my insurance remain valid?
Many home insurance policies stipulate that properties must not remain vacant for more than 30 days at a time. With the end of the lockdown at best several weeks away, owners of second homes in the capital may be anxious that their policies will become void just when they’re needed most.
We would advise owners to contact insurance companies, many of whom are likely to be accommodating given the extraordinary situation. Alternatively, our Vacant Care Service involves frequent inspections of clients’ properties, ensuring they meet their insurer’s requirements.
What happens if my buy-to-let tenants fall into arrears?
Clients with buy-to-let properties – especially those financed with mortgages – are likely to be concerned about the ability of some tenants to continue paying rent, given the economic consequences of the lock-down.
The government has put forward a package of measures to protect renters, to ensure that they can’t be forced out of their home during the crisis. From the end of March, landlords are required to give three months’ notice if they want to end the tenancy, and the Court service has suspended all ongoing housing possession actions for at least 90 days.
Tenants remain liable for rent, and government support is available for those facing hardship. We would advise that landlords exercise some forbearance with tenants who are facing difficulties in paying rent, and we note that landlords are entitled to apply for a three-month mortgage payment holiday that could offset any delayed rental income.
What happens next – Prime Central London after the pandemic
Before the pandemic struck in March, London’s prime property market was beginning to take off, as post-election political certainty helped unlock months of pent-up demand. In the three months to mid-March, prices in London’s established prime markets had risen 2%, according to Savills, meaning that annual price growth was positive for the first time since September 2015.
In another sign of the strength of the housing market before the onset of the outbreak, the Bank of England confirmed on the 30th March, that mortgage approvals for house purchases climbed to 73,500 in February. This is the highest monthly level recorded since January 2014, confirming the potential pool of demand once conditions improve.
“What happens next to pricing is anyone’s guess – it’s far too early to tell, and everything depends on the length of the lock-down,” says Dell. “At the moment, the market is frozen, so we are unlikely to see price falls in the short term as no transactions are taking place. Over the coming weeks and months ahead, some distress is likely, especially among developers, some of whom may find it difficult to obtain the financing to tide them over. The longer the lockdown, and the more developers go out of business, the more stock will be sold by administrators at low prices, pulling down the wider market.”
On the other hand, there is likely to be strong demand from overseas buyers for two reasons, notes Black Brick Partner Caspar Harvard-Walls. The first is the decision in the March budget (which seems like a lifetime ago) to impose a 2% Stamp Duty surcharge on overseas buyers of UK residential property. That surcharge comes into effect next April and will likely spur transactions ahead of the deadline. The second factor is the collapse of sterling during the current crisis. “Buyers of sterling at $1.14 to the pound will have locked in a significant discount,” he says.
Certainly, a longer lockdown, continuing uncertainty and the resulting economic turbulence would be negative for the market. For nimble and opportunistic buyers with ready access to capital, this would provide opportunities once London and the market reopened. A shorter lockdown and a ‘V’-shaped economic recovery, in contrast, would likely see the London property market continue its recovery.
“Market turmoil always creates opportunities, especially for cash buyers able to move quickly to take advantage of vendors looking for a quick sale,” says Dell. “We’ll continue to closely track developments to ensure that any of our clients looking to invest will get early sight of any attractive openings.”
Acquisition of the month – One Casson Square, Southbank Place, Waterloo, SE1 – £1,850,000
Our Canadian client was looking for a London pied-a-terre and had decided a new-build property along the Southbank would suit their requirements. However, they were finding the wide variety of apartments, and the wide range of buying options, difficult to navigate.
We found them a 31st floor, two-bed, two-bath apartment in the One Casson Square building, part of the new Southbank Place development, which is recognised as the highest quality development on the Southbank in terms of construction quality, interior design and facilities. The unit is just below the penthouse and provides expansive views over the Thames and central London.
The unit was a contract assignment that had been reserved more than two years ago by the original purchaser, who was very keen to exit their investment prior to completion to avoid paying the final 80% of the purchase price and the Stamp Duty bill. Our client was therefore able to step in and purchase the apartment just prior to completion at a £165,000 discount on the original purchase price (equating to an 8.2% discount) for one of the best units in the development.