5th January 2024
A new year is a time to take stock. And after a challenging, but certainly not disastrous, year for London’s property market the question on all our clients’ lips is: what next?
To help navigate the market in the year to come we have taken a look at the ten lessons 2023 taught us about London’s property market – and what they mean for the next 12 months:
Doom-mongers spent the tail end of 2022 predicting London, and indeed the entire UK, was heading towards an inevitable 2023 house price crash.
In reality average Prime Central London (PCL) prices barely faltered, dropping a negligible 0.9 per cent last year according to the latest research from estate agent Savills.
This resilience is mainly down to the fact that 70 per cent of homes in PCL are owned outright and their owners have been completely unaffected by the series of Bank of England base rate hikes which have pushed prices down elsewhere.
Black Brick expects to see more of the same this year.
Unless some dramatic and truly unexpected event occurs it is as hard to imagine a sudden boom in prices as it is a shock collapse.
Estate agent forecasts for how the market will perform in 2024 have – so far – been unanimously lacklustre. JLL and Savills both think prices will flatline during 2024 before starting to climb again in 2025. By 2028 the firms predict cumulative PCL price growth of around 19 per cent.
London’s property market is incredibly nuanced. The overall picture in last year was rather beige but there have been some pops of colour.
Best in class homes – from luxe lateral apartments on picturesque garden squares to impeccable family houses in sought-after suburbs – have shone.
“This kind of property is rare and demand is always high no matter what the rest of the market is like,” said Dell.
Caspar Harvard-Walls, a partner of Black Brick, thinks this kind of dream home attract premium prices and constant demand partly because buyers are thinking long term when they invest in a property nowadays. “Increased acquisition costs mean that people now consider their moves much more carefully,” he said.
Two of Black Brick’s recent deals illustrate just how hot London’s market can get when a real treasure comes up. In August we helped French clients upsize to a larger home in Chelsea Green. We found them a super double-fronted house on Burnsall Street. Other buyers were also interested and we advised them to bid £6.3m (slightly over the asking price) in order to secure the deal.
Another client was after a lateral flat with a prestigious address. We helped them find a two bedroom property on Cadogan Square – arguably London’s best garden square – and helped them navigate a competitive buying process. Since homes like this don’t come up very often we advised our clients to offer £4.55m and they were thrilled when their bid was accepted by the owner.
Homes like these will continue to attract premium prices this year.
While standout trophy houses have attracted multiple bidders, owners of ever so slightly imperfect properties have had to face some cold, hard truths in 2023.
Prices they might have achieved at the peak of the post-pandemic property gold rush, are no longer an option. Many have been forced to cut their asking prices substantially just to tempt price-conscious buyers over the threshold.
Dell feels that most vendors have – slowly – woken up to the fact that they can’t expect record breaking prices for their homes (although some will inevitably still give it a go, particularly if they opt to try and sell off-market).
“It takes time for sellers to get on the same page as buyers, but I think that we are finally there,” she said. “Those sellers that still have their homes on the market have accepted reality, and I hope that in 2024 we will see more of a meeting of minds.”
Another hallmark of the 2023 London property market was a surge in the number of buyers paying cash for properties. In 2022, 34 per cent of Black Brick’s deals were cash sales. Last year that almost doubled, to 66 per cent.
This change, clearly, is all thanks to the rise in interest rates. They jumped from 0% in 2021 to 5.25 per cent and show no sign of dropping back.
“When interest rates were low even some of our wealthy high net worth buyers would take finance because it was a simple way of protecting them from inheritance tax,” explained Dell. “It is only charged on the equity you own in a property. Now clients, particularly younger clients, are rethinking.”
Older clients who are more concerned about legacy planning are also considering paying cash for property, although they are increasingly turning to jumbo life insurance policies to help protect their heirs from massive future tax bills.
We have entered into an election year and General Elections have a nasty habit of causing temporary property slowdowns as buyers and sellers wait for the votes to be counted before making big life decisions.
The Labour Party, the clear front runner, has been dribbling out information about its manifesto plans. So far there hasn’t been too much to scare the horses, although the news for overseas buyers has not been good.
The Labour Party’s previous leader Jeremy Corbyn rattled affluent Brits with talk of wealth and mansion taxes.
Keir Starmer is taking a different approach, with reassuring comments around income tax and wealth tax. But Labour will dismantle the non-dom tax regime which allows people to live in the UK without having to pay tax on global earnings.
And it will increase the Stamp Duty surcharge for international buyers of secondary homes by three per cent (on top of the extra five per cent they already pay).
“It starts to make Stamp Duty extremely expensive for overseas buyers,” said Dell. “History shows that when Stamp Duty goes up prices in PCL go down by the same amount, and that could mean a three point drop in parts of London that are popular with overseas buyers.”
The impact of a crackdown on non doms is harder to foresee, but it is inevitable that Britain’s 68,300 non doms will already be considering their futures.
The Conservative Party has so far been more circumspect about its manifesto plans for this year, although it is likely to begin a charm offensive to woo voters with its spring budget on March 6.
Inheritance tax reform, including increasing the tax-free threshold, cuts in income tax, and help for first time buyers, could all add a little feel-good factor into the property market.
For a more in depth look at how a Labour election victory will impact London’s super prime property market Black Brick’s podcast, Finding Perfect Property, Diary of a Buying Agent, has the answers you need.
Camilla Dell talks Non Doms, Stamp Duty hikes, and legal tax loopholes with Nimesh Shah, CEO of tax, accounting, and business advisory firm Blick Rothenburg, and Sean Randall, a tax partner at the firm.
The Conservative Party has been more circumspect about its manifesto, although Stamp Duty and tax cuts have both been mooted as ways to shore up its flagging position in the opinion polls.
If the resilience of London’s property market was the good news of 2023, the collapse of transaction numbers was the bad.
Different sources offer different pictures of the severity of the downturn. Estate agent Knight Frank said PCL sales are down 15 per cent year on year, while house price analyst LonRes put the annual drop across the wider prime London area at almost 30 per cent.
The surge in interest rates during 2022 and 2023 was the obvious reason for the crash in deal numbers – but we may see numbers starting to creep upward in 2024.
Inflation is dropping, the Bank of England opted to keep rates steady over the autumn and may even make cuts this year, and competition between lenders is good news for home buyers.
At the start of January HSBC became the latest major lender to announce across the board interest-rate cuts, offering five year deals at 3.94 per cent for those with a deposit of at least 40 per cent. Halifax, Leeds Building Society, and several smaller, specialist lenders are also cutting rates.
These are all positive developments for the housing market. But buying costs are still substantially higher than they were a couple of years ago. And with little sign of price growth on the horizon, buyers will still lack impetus to move quickly.
The surge in interest rates is the obvious reason for the crash in deal numbers. This year the fact that inflation is dropping and the Bank of England opted to keep rates steady over the autumn may help bring buyers back to the table going forward.
But buying costs remain high and, with little sign of price growth on the horizon, buyers will lack impetus.
Some discretionary buyers even seem to be holding out for a significant price drop before making their move.
“A lot of buyers are waiting for prices to drop like they did in the financial crisis before making a move, particularly overseas buyers,” said Dell.
During the pandemic urban flats were a hard sell. What buyers wanted was space to work from home, gardens, and leafy surrounds.
With more workers returning to the office every month, and London back in full swing, there has now been a complete reversal of fortunes.
Six out of ten homes Black Brick bought during 2023 were flats. The most popular location was SW1 (Belgravia, St James’s, and Westminster).
And while at the height of the pandemic nobody would buy a flat without outside space now buyers tend to be more interested in air conditioning than a balcony.
Our collectively short memory about life in lockdown is one reason why flats have been rehabilitated so quickly. Some buyers also have a canny eye for future investment potential.
There are very, very few building sites in prime locations left in London and there is a growing awareness that the current crop of upscale apartment buildings will likely be amongst the last opportunities for buyers to pick up a brand new flat in a luxe building.
Westminster Council has even introduced a policy of refusing planning consent for flats bigger than 150m² (1,615 sq ft).
“What this means is that there are going to be no more of these mega super prime new build flats like The Peninsula in Belgravia and Chelsea Barracks,” said Dell. “Prices are going to go up because they will become increasingly rare.”
Cash rich time poor buyers in today’s market are showing very little appetite for buying a fixer upper – the homes which sold best during 2023 were undoubtedly those in immaculate turn-key condition.
Borrowing money to fix up a home is expensive, and research by Rated People suggests the cost of home renovations has shot up 40 per cent since 2020. Good builders are booked up months in advance.
“People will do work if a property is really special, but the idea of doing work to add value has just disappeared,” said Harvard-Walls. “It is time consuming and expensive, and there isn’t a margin.”
Across the globe, from Dubai to Miami, glamorous residences curated by luxury brands have been a huge hit with wealthy buyers who love their mix of style plus service.
London was relatively slow off the mark, but during 2023, the capital gained three standout schemes. Sales at The Old War Office in Westminster (Raffles Hotels & Resorts), the Mandarin Oriental Mayfair, on Hanover Square, and The Peninsula Residences, Belgravia (The Hongkong and Shanghai Hotels) have been strong.
“The concept has been very popular and the rents being achieved are incredible,” said Harvard-Walls.
These success stories should herald more branded residences coming London’s way over the next few years, but the lack of suitable building sites will be a challenge for the sector.
One solution would be for these blue chip brands to start exploring slightly less-than-prime postcodes. The Mandarin Oriental Hotel Group recently unveiled a deal to create a hotel and 70 branded residences on up-and-coming Bankside, and it will be fascinating to see if buyers will pay PCL-style prices to live south of the river.
As a global city it is not surprising that Black Brick’s client list comes from every continent on earth.
During 2023 20 per cent of our buyers came from the UK, but we also helped buyers from the USA, Nigeria, Switzerland, Canada, UAE, Singapore, Bermuda, and Italy.
These buyers are attracted to London for many reasons: work opportunities, its great schools and universities, and its cultural and social life.
Britain’s comparatively stable and moderate political system has attracted American buyers nervous about the potential for Donald Trump to return to the White House this year, and keen to take advantage of the strength of the dollar.
There are also early hints that Middle Eastern buyers, who have been property shopping in the British capital since the 1970s, will see now as a particularly good time to buy in a safe and stable location – even though a London investment is unlikely to net them strong capital gains in the immediate future.
“The wealthy value diversification, and London is a very safe option,” said Dell.
For even more insight on what 2024 holds for the UK property market Camilla Dell is a guest speaker at a seminar hosted by law firm RWK Goodman at its central London office. She, and Frances McDonald, Savills’ director of residential research, will discuss how both prime and mainstream markets will perform in the year to come at the event on January 18.
For more information see: www.rwkgoodman.com
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.