1st July 2009
Property temperatures on the rise?
July may herald the promise of an atypically warm British summer, but there are emerging signs too that the London property market is hotting up – or at least thawing. Lack of supply continues to be the driving force in the prime central London market, a situation that looks set to worsen as existing sellers withdraw and potential sellers delay in the belief that prices may rise.
Meanwhile, the tone of media coverage of the sector has undergone a swift volte face. Ever prone to exaggeration on both the way up and the way down, column inches previously devoted to doom and gloom stories in the nation’s broadsheets are now trumpeting the return of gazumping and sealed bids.
Competition still fierce for rare prime central London property
The media coverage simply highlights what we at Black Brick experience first hand week in, week out. Indeed, extremely aggressive tactics are commonplace in a market in which diminishing supply is the predominant feature as growing numbers of existing sellers withdraw properties.
Knight Frank’s Summer Residential review explores the supply issue further, noting that the number of new properties coming to the market in central London in the first four months of the year was down 45% from 2008, yet, says Knight Frank, “the number of applicants registering to buy has risen by 14%”.
We believe the potential benefit of experienced buying consultants capable of finding and securing off-market properties is all the more important in such an environment. Camilla Dell, Black Brick Managing Partner, says: “What stands out for us in the London property market is the continued lack of supply in prime Central London. Where we have seen attractive properties come to market in recent weeks, competition has been fierce. But this is where the skill and experience of the buying consultant can come into its own. As London’s leading independent search and acquisition property consultancy – there is no question that interest and offers from Black Brick are taken seriously. We have also employed a number of aggressive tactics, including non-refundable deposits, to demonstrate the seriousness of our commitment to a property and secure it for a client.”
Latest data points to stabilisation
Though definitive trends are not always clear from the myriad of statistics for the broader UK housing market, recent data suggests a short-term stabilisation in prices. After a 1.3% gain in May for the widely-watched Nationwide house price index, the June figures showed a rise of 0.9%. Meanwhile, official figures from the Land Registry published in late June show prices falling just 0.2% for the second month in a row.
Martin Gaubher, Nationwide’s chief economist, says: “There continues to be a relentless drop in the stock of property available for sale, as potential sellers and builders have responded to depressed demand conditions by reducing the supply of property coming onto the market. As a result, prices have been able to stabilise even in the face of very low demand.”
Camilla Dell highlights the long-term value: “We do not expect the recovery in prices to be linear or without volatility. It would come as no surprise if the industry’s benchmark indices dropped a little in the coming months. But the long-term case for prime central London residential property now is particularly compelling for international investors who are currently garnering a significant currency benefit – but also for domestic buyers who may have been in rented accommodation for a few years and built up a substantial deposit.”
New buyer enquiries rising fastest in the South East of England
The sense of a hesitant recovery in conditions is reinforced by the latest news from the Royal Institution of Chartered Surveyors (RICS). The RICS’ survey for May showed new buyer enquiries increasing for the seventh month in a row and at the fastest pace since August 1999. Significantly, that increase was most marked in London and the South East of England. The survey also contained more definitive evidence that the rebound in enquiries is translating into completed transactions, albeit from a very low level.
Our belief is that the lower end of the prime market, i.e. sub-£1m, is set to recover quickest, supported by renewed investor attention in the unique status of London property – underpinned as it is by limited supply and fierce new build restrictions, London’s position as a global financial centre, by the UK’s favourable capital gains tax regime and finally by the UK’s wide choice of excellent schools, prompting many international buyers to choose London as a base.
Financing conditions easing a little
Evidence from industry bodies suggests that mortgage conditions are easing very gradually, despite the introduction on April 6 of new rules which prevent homes being marketed without a completed Home Information Pack or information questionnaire. According to the British Bankers’ Association (BBA), mortgage approvals from the main high-street banks rose 15.8% in May from a year earlier, while the average value of a house purchase loan increased for the fifth month in a row. At £133,000 the average house purchase loan now stands some 15.1% above the December 2008 low.
However, according to the Land Registry, 33,161 house transactions were completed in May, still down 43% from March 2008. Meanwhile, overall mortgage lending remains very weak, says the BBA, though this is also a reflection of the sharp drop in remortgaging in recent months. In 2008, the value of loans approved for remortgaging was double the value of loans approved for house purchases. That trend has now reversed and for the third month in a row, the value of house purchase loans was greater than the value of remortgaging in May.
At Black Brick we believe cautious optimism is appropriate. We are not complacent about the economic backdrop; rising unemployment may yet impact the wider property market while the availability of finance remains key to a broad-based rally. Until supply and transaction levels return to historic norms, it is difficult to pronounce with conviction that prices have bottomed. But we do believe strongly that it is better to buy close to the bottom on the way down than risk catching the upswing – a scenario in which prices are inevitably chased higher.
Property should be viewed as a long-term asset. Our view is that prospective buyers should therefore be asking themselves whether they believe values will be higher in ten years’ time, rather than pondering on whether they should wait a few months in the hope they might be able to buy something 5% cheaper.
Camilla Dell says, “If we are not at the bottom of the property market we are certainly not too far from it. And the one thing we can be sure about with rare prime central London property is that when the market turns properly, competition will be even fiercer. If you are in a position to move, why risk waiting?”
Other industry heavyweights appear to agree that the market is close to the bottom. Knight Frank’s June Residential Market Update was titled ‘More Positive Signs’. Knight Frank’s Head of Residential Research, Liam Bailey, went on to say that sales activity is beginning to rise due to government support “but also due to the fact that buyers are beginning to sense that they are buying at or around the bottom of the market.”
Short leases under the microscope
We pride ourselves on finding solutions to the challenges of locating and securing the perfect property for our clients. One way of prising open the very tightly supplied prime London property market is to embrace approaches that others are ignoring. Many buyers and investors will not even consider a property with a short lease, often, says Black Brick Associate Partner Caroline Takla, without fully understanding the legal right of a leaseholder to extend the lease or the clear process for extension that exists in the UK.
“Short leases can be an attractive way of gaining a foothold in the prime central London market where properties are extremely rare. Short leases are often misunderstood – despite the criteria for lease extension being relatively straightforward. UK legislation provides that once a property has been owned for two years the leaseholder has the legal right to extend the lease by another 90 years and the ground rent becomes a peppercorn. Leaseholders qualify as long as the original lease was longer than 21 years, regardless of how many years are remaining when the leasehold is purchased.”
James Rangeley of JSS Egerton, a leading specialist in lease renewals, provides more detail: “Where the vendor is a qualifying tenant, it is also possible for them to serve the statutory notice onto their landlord(s) and then assign the benefit of that notice to the purchaser. This is particularly common in sales involving ‘short’ leases, and where the purchaser does not wish to wait until they satisfy the ownership test.”
We believe short leases represent a good solution for cash rather than leveraged buyers. Short leases may also hold particular attractions for rental investors due to intrinsically higher yields.
Black Brick team expands
In other news we are delighted to announce a new face to the Black Brick team. Philip Seidl joins Black Brick having spent a number of years acquiring high quality residential and commercial properties for private clients throughout London as a Director of Templeton Property Search and previously as a Senior Buying Consultant at Oakhall Property Source. Prior to property search, Philip spent a highly successful and enjoyable 18 years in the music industry working for Sony, Telstar and Sanctuary Music Group handling the careers of a variety of world renowned artists.
Philip has an impressive reputation amongst his clients for offering complete discretion and anonymity. His passion for property allows him to inject enthusiasm and professionalism into his role. Philip is married with two young children and enjoys playing tennis and golf. For his sins, Philip is a devoted fan of Liverpool FC – and thus brings a sense of boundless optimism to all his endeavours!
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.