Late January saw the tightening up of UK travel restrictions, with the announcement of Australian-style mandatory hotel quarantines for some travellers, just as the 2% stamp duty surcharge for overseas buyers comes into view. The nationwide lockdown has created an environment of ‘pent-up supply’, pushing transactions into the grey market and increasing the need to use a buying agent more than ever. This month’s newsletter delves into these issues, along with renewed speculation that the UK should scrap stamp duty in favour of a property tax.
As the end of the stamp duty holiday comes into view, will there be a market cliff edge at the beginning of April? “For our clients, the £15,000 difference can easily be negotiated away and will not make a big difference to demand, if at all,” says Camilla Dell, Black Brick Managing Partner. “The 2% surcharge for foreign buyers, kicking in on 1st April, will be more relevant. But, again, this is where the honed negotiating skills of an experienced buying agent can really come into their own.”
Without the current lockdown and new travel restrictions, Q1 2021 should have been a very busy period. Since our last newsletter, the UK government has scrapped travel corridors and introduced Australian-style mandatory hotel quarantines for travellers from 33 countries, including the UAE, Portugal, and several countries in South America and southern Africa. Visitors from other countries will still have to self-isolate for 10 days, or 5 days after a negative test under the ‘test-to-release’ scheme.
But overseas buyers will still be coming to the UK looking for purchases, including from non-quarantine countries such as the US. “The pace at which Black Brick has signed new clients so far this year is extraordinary and a sign that appetite for London property is still strong,” notes Camilla Dell. “Since 1st January, Black Brick has acquired six new clients – four from overseas (including the US and Africa) and two from the UK.”
Data from Savills confirm that the prime London market has remained very healthy during the pandemic: “At the very top of the market, we reported that there were 348 sales of £5m+ property across London in 2020. That represented a +12.3% increase compared to 2019 and was the highest annual number figure since 2016, reflecting the ongoing appeal of central London property despite international travel restrictions.”
Zoopla’s latest House Price Index Report suggested that UK housing demand was up 13% in the first two weeks of 2021 and supply was down by 12%. The exception is in fact London, driven by an increased supply of flats. Zoopla believe this is due to a combination of: “1) more owners looking to trade up from flats to houses motivated by a desire for space and more flexible working patterns; 2) investors looking to sell homes in the face of falling rents and expectations of an increase in capital gains tax rates in 2021.”
Still-buoyant buyer interest and shrinking stock levels are colliding to support pricing. “Pent up demand has been replaced by pent up supply,” says Camilla. “After a busy end to 2020, stock levels have not been replenished coming into 2021. Sellers are nervous about openly marketing their properties and serial viewings. As a result, we have seen a surge in enquiries for managed sales, with 18 so far this year, totalling £80 million of property not on the open market. When the lockdown is eased, infection rates fall and vaccination levels rise, we would expect a flood of supply to come to the market, reducing pressure on prices.”
It is not just the pandemic itself that is making potential sellers wary of marketing their properties but the new legal environment for landlords is acting to restrict supply. The Coronavirus Act included a clause that tenants would need to be given 6 months’ notice to end a tenancy, regardless of the terms of the original agreement. While the clause was quite rightly introduced to protect vulnerable tenants, it may be having an unintended effect in reducing supply to the Prime Central London market. Black Brick’s Caspar Harvard-Walls noted that this is having a big impact in some areas with tenants not moving in areas such as Fulham. Tenants are not moving on and family houses are even more difficult to come by.
The ‘grey market’ hit the headlines recently with the sale of George Michael’s North London property in December for a reported £19mn. ‘Grey market’ sales are where the owner has engaged an estate agent but the property is not being openly marketed. With more and more Prime Central London sellers doing deals away from the open market, what does this mean for buyers? And what is the best way to access this difficult-to-find supply?
The lack of stock ‘officially’ on agents’ books and appearing on the online portals heightens the value of using a buying agent who has the existing broker relationships and can unearth those unadvertised but available properties. 19% of Black Brick transactions in 2020 were off-market and Camilla Dell expects this percentage to increase significantly in 2021.
Black Brick’s Caspar Harvard-Walls highlights that “the number of managed sale enquiries Black Brick is receiving just shows that there is the appetite to sell but owners are being extra cautious in the current environment.” For a managed sale, engaging Black Brick means a seller can limit in-person viewings and ensure that potential buyers are fully vetted, with financing and lawyers already in place. From our buyers’ perspective, Black Brick has the strong relationships with Prime Central London estate agents to ensure we are made aware of appealing properties that are not being openly marketed. Sellers can trust that our buyers are serious and fully vetted and we can conduct initial property research on their behalf to ensure only credible options make it to the viewing stage.
Says Caspar Harvard-Walls, “Now is a good time to be seeking out those strong grey market opportunities. If our early-year enquiries are anything to go by, the market will be extremely busy when Covid restrictions are eventually eased.”
A taxing situation
Potential reforms to UK stamp duty and council tax hit the headlines this month, with the suggestion that the Treasury might be considering replacing these taxes with an all-encompassing property tax. This comes on top of existing speculation over future changes to the capital gains and inheritance tax regimes.
Total UK taxes on assets are high in international comparison. The OECD broadly defines tax on property as “recurrent and non-recurrent taxes on the use, ownership or transfer of property. These include taxes on immovable property or net wealth, taxes on the change of ownership of property through inheritance or gift and taxes on financial and capital transactions.” Based on this definition, UK taxes stood at 4% of GDP in 2019, among the highest anywhere in the world and the same rate as France. US taxes stand at 3%, those in Germany at 1% and the OECD average is 1.9%.
This certainly suggests there is room to reform the property tax system in the UK (including stamp duty, capital gains and inheritance tax) but whether there is scope to eke more revenue out of it is another question. However, a simplified regime that boosts property transactions and helps to free up market equity could have many indirect positive consequences.
Black Brick’s Caspar Harvard-Walls shared some thoughts: “Shifting away from punitively high stamp duty rates at the top of the market to a property tax could encourage the older generation in large family houses to sell. This would both release family homes back into the system and fresh capital. With the 7-year relief still in place for inheritance tax gifts, the younger generation could then benefit from freed up equity and lower stamp duty charges to trade up. The cost of downsizing right now is just too prohibitive but older owners are sitting on huge unrealized capital gains. There is a need to unblock the market and scrapping stamp duty could help to achieve this. People are not selling but we need plenty of transactions for a healthy market.”
Black Brick were delighted to feature in the Spears 500 list of “top private client advisers, wealth managers and HNW service providers” for 2020. Managing Partner Camilla Dell featured in the coveted Top 10, Caspar Harvard-Walls as a ‘distinguished individual’ and Tom Kain as a ‘rising star’.
Camilla’s entry highlighted: “’Transparency’ and ‘honour’ are the blocks with which Dell builds [client] relationships, traits she feels are key in dispelling negative preconceptions about the property industry. ‘It often gets a bad rap,’ she says of the profession. ‘Buyers feel let down and disillusioned and often rightly so, by harsh selling practices. What inspired me to become a buying agent and set up Black Brick was the desire to “level up” the playing field, and ensure that buyers got a fair deal. I truly believe that every buyers should have a buying agents acting for them – without one, it’s a bit like going to court without a lawyer!”
And from Caspar’s bio: “Harvard-Walls’ central philosophy is that the best buying agents are able to give their clients the knowledge and confidence, so that when the right property comes up – whether that be a home or an investment – they are able to make a committed decision to move forward and transact. ‘Once the search has started, we operate a team approach and, as well as using our network of contacts to find the right property, are always thinking creatively to try to uncover the ideal home or investment opportunity for our client.”
We were delighted to participate in the January Luxury Property Forum webinar, where 255 people dialled-in to hear the discussion. We have included a few of the best soundbites from Camilla below.
On the ‘great London exodus’:
“Lockdown number three is creating a real desire for people to get back to the office and back to normality. Although some people have moved out of London during lockdown, we’ll see a huge flood of people come back to the city once we get back to some sense of normality… there is still a future for a collaboration of people coming together and for the office life to resume.”
On Prime Central London ‘hotspots’ in 2021:
“One of the asset classes that has really suffered as a result of the pandemic has been flats, particularly those in PCL and those without outdoor space…As an example, last year we did a huge amount of groundwork for an international client before they flew over to the UK and we managed to save them 21% from the original asking price on a beautiful two-bedroom flat in Belgravia, and although it didn’t have any outside space it will be a great long-term investment. Hotspots this year are areas like Knightsbridge, Belgravia, Mayfair, South Kensington, where typically we see a lot of international demand.”
On the value of using a buying agent during a pandemic:
“…having representation as a buyer is so important, but even more so in a pandemic as it minimises the risk for everybody and there’s so much groundwork that we as buying agents do before we physically take anyone into see a property.”
“It’s difficult to remember the last time a client asked about what impact Brexit is going to have on the PCL property market. In terms of any impact on pricing, we believe it’s been baked into the market already and prices are unlikely to be affected by Brexit now we’ve left the EU, secured a deal, and established that the hundreds of thousands of people that were predicted to leave the city haven’t. …For our overseas clients, what’s more of a concern to them is the foreign exchange rate (FX). …Luckily for a lot of our [clients], they’d been considering buying in London for a couple of years and switched their dollars into pounds a while ago and are therefore sitting on a healthy gain.”
On the impact of the pandemic on the market:
“Our clients are not worried that the pandemic is going to affect property prices, it’s more about staying safe on viewings…What we’re seeing is the really serious buyers coming through; gone are the window shoppers, so what we’re seeing are committed and serious domestic and overseas buyers which is really positive.”
On the 2% stamp duty surcharge:
“The 2% surcharge for overseas buyers will have some impact and it’s unlikely to be the same as we’ve seen before, when typically, stamp duties have been absorbed into the market. There will certainly be some parts of the market that will be more vulnerable to the 2% surcharge from 1st April and will see prices come down in line with the increase. This includes such as high-density new builds in secondary/tertiary parts of London which are very much focused on the overseas buyers’ market for example Battersea Power Station, Canary Wharf and Lillie Square.”
We were engaged by a UK-based couple who were looking to move from their flat in Maida Vale to a much larger house with a garden in West London as they needed more space. Having lived and worked through two lockdowns it was essential that the house have a separate living space for their young daughter to play in. With both being partners at City law firms it was also crucial that the house have a sensible commute in to the City. Due to their very busy work schedules, they simply did not have the time required to fully research and explore the multiple areas they were considering.
After comparing options in Fulham, Chiswick, Putney and Barnes, we decided that Brook Green, with its close proximity to central London and great transport links, would be the ideal location for them. There, we found them an immaculate 4-bedroom family home that had a separate play area on the lower ground floor for their daughter. It also had a large South West facing garden which is exactly what they were looking for. The market in West London for family homes is highly competitive yet we were still able to negotiate a £50,000 discount from the asking price of £2,850,000.
Even when we are given a wide initial brief, we have the time, experience and expertise to research and explore multiple areas, ensuring that our clients are in no doubt which area works best for them.
Our British client was looking to upsize their family home in Dulwich, South London. Being one of the most desirable suburbs in the capital, due to its selection of world class schools, Dulwich is a fiercely competitive family housing market. Stock is severely restricted and good houses are often held in the same ownership for 20 or 30 years. Even though our clients lived in the area they were having a problem finding the right house.
Through an extensive process of searching via local estate agents without success, we changed approach and wrote directly to a number of houses in the area which had been highlighted together with our clients. We quickly received a reply from a property owner who was considering a sale of a rare five-bedroom property with carriage driveway and 100 ft garden. The house had been in the same ownership for 30 years and had never been on the market. We were able to close the sale of this fabulous family house completely off-market with no competition at a sensible price.
By thinking outside the box, we were able to create an opportunity for our clients which they would never have been able to do without our involvement and to negotiate favourable terms. In an incredibly competitive family house market, our clients now have the perfect property which they can call home for the next 20-30 years.