24th June 2021
The world is teetering right on the precipice of normalcy after an extraordinary 15 months.
Weddings are back in the diary, a summer holiday abroad is not completely out of the question, major firms are calling staff back to the office, and Government support for those who have lost their jobs, or want to buy a home, is almost at an end.
All the signs point to be an interesting few months ahead.
Certainly, the collective re-evaluation of what we really want from our homes that has gone on during the pandemic seems likely to reverberate well after al fresco entertaining in the rain and social bubbles have been consigned to memory.
Right now it is spacious homes close to plentiful open space that are the hottest property ticket in town.
But as London reawakens from its enforced hiatus, don’t be surprised to watch the traditional powerhouse of the British property market begin its long-awaited ascent after the long, slow years since Brexit.
It’s the beginning of the end of the Stamp Duty holiday.
As of this week/June 30 buyers will have to pay tax on property deals above £250,000. From September the full rates will kick in again.
When Rishi Sunak introduced the tax break last summer his stated aim was to “catalyse the housing market and boost confidence”.
And the promise of a £15,000 saving has certainly done that.
Prices in the UK jumped by more than seven per cent last year – the first time in modern history real estate prices have defied a recession according to Savills – and mortgage borrowing hit a record £35.6bn in March.
Most pundits agree that while the holiday has artificially inflated demand in the mainstream market this will simmer down once it ends – with a knock on effect on price growth.
But with the economy looking surprisingly healthy, and employment up in May for the sixth consecutive month according to the Office of National Statistics, we are more likely going to see a gentle descent not a big bump.
Savills’ five year forecast suggest that once the Stamp Duty holiday ends so will the mini boom in mainstream prices. It predicts that growth will settle down at just above the rate of inflation – four per cent this year, and five per cent next year.
London’s property market exists in its own microclimate – the Stamp Duty holiday has had much less of an impact on the capital over the past year and the effect of its removal likely to be even less marked.
“Ultimately, we are only talking about a maximum saving of £15,000” said Camilla Dell, managing partner of Black Brick. “I never really felt that was making a huge difference to buyers in London who are spending millions of pounds.
“It was definitely something they were happy to have, and even really wealthy clients wanted to get their deals done by the end of the month. But will we see a cliff edge situation? I don’t think so.
“I don’t see the market being stopped dead in its tracks. The general momentum is only going one way, and that is up.”
Prime Central London is one of the few property sectors which has underperformed during the pandemic – all the price growth has been out in the suburbs and the country as buyers race for space.
However, Savills feels that this hallowed enclave is poised to come back fighting. Its research team is forecasting annual growth of three per cent this year, and seven per cent in 2022; quite something for a market which has been in the doldrums ever since the Government began hiking Stamp Duty back in 2014.
In fact, we have already seen some early signs of a PCL comeback. Data consultancy LonRes found that transactions in April were up 21 per cent compared to April 2019 (the market was, of course, closed last April).
And prices grew by 0.3 per cent in the year to May, according to Knight Frank. Although a fraction of a percentage point doesn’t sound like much it is the first time that prices have grown in PCL since the EU referendum. At the very top end, meanwhile, the number of buyers seeking homes in the £10m-plus bracket is looking strong, with numbers 54 per cent higher than the five year average according to the firm.
But while there are clearly some high rollers out there in terms of numbers the super-house market is tiny. Our feeling is that PCL won’t really ignite until international buyers return to light the touch paper.
“In normal years London would be full of people from the Gulf at this time of year, but all our clients in the Middle East are stuck,” said Dell. “When more countries move onto the amber list that might change, but they aren’t going to go into quarantine hotels.
“We therefore believe that PCL is a buying opportunity at the moment. It is the one part of London which is not really over heated, and that window could last for another six to twelve months.”
Even the splendid success of Britain’s vaccination programme hasn’t been able to halt the rapacious march of Covid-19.
“Freedom Day” has been postponed until at least July 19 as a whole cast of variants of the virus cause a spike in case numbers and an increase in hospitalisations.
Our view is that this delay, while clearly worrying, will have little impact on the property market. In fact, in an odd sort of way, it could actually make buyers even more determined to upgrade their homes.
“The longer the pandemic goes on for the more it reinforces people’s view about the importance of their homes,” said Caspar Harvard-Walls, partner of Black Brick.
“You work there, your children learn there, you are at home more than ever before.”
Underpinning buyers’ ability to fight hard to secure their dream homes is the availability of very cheap finance.
Mortgage borrowers are currently paying less in interest than at any time in the past two decades. The Bank of England’s latest credit report showed average loans were running at just over two per cent.
“If you are going to sealed bids then putting in an extra £50,000 at two per cent a year will cost you £1,000 per year, and that is why bids are going so high,” said Harvard-Walls.
And while rising inflation has prompted talk of rate rises, with the furlough scheme coming to an end and the economy still not out of the woods, it is unlikely we will see significant rises in the imminent future.
Buyers seem to have money to spend; the real problem is that there is not a lot around for them to spend it on.
There are 16 house hunters chasing every single property on the market according to the estate agents’ body NAEA Propertymark, and gazumping and competitive bidding have become almost the norm for good-looking family houses in popular locations.
“I am seeing a massive lack of supply of homes with gardens in areas like north west London,” said Dell. “I honestly can’t remember a market which has been quite so difficult. Supply levels are appalling.”
Exactly why owners in possession of these golden-ticket properties (specifically roomy WFH-friendly houses with good gardens in leafy suburbs) aren’t rushing to take advantage of all this pent-up to demand is hard to fathom.
One factor is that while selling this kind of house might be a breeze, finding an exit strategy can be challenging. “Even when buyers are willing to pay premiums owners can’t find anything to move on to,” said Dell. “Even if prices are crazy owners can’t accept them.”
One solution for owners in this position would be to sell up now, while the going is good, move temporarily into rented accommodation, and then hunt for a new home.
But there seems to be a general unwillingness to step off the gravy train, even for an instant, just in case the going gets even better. “Perhaps people think this is just the start of an upward trend and they don’t want to sell out too soon,” said Harvard-Walls, who sees a “definite case of FOMO” in the market. “There are people who do fear that if they sell up now they could miss out on five to ten per cent growth by the time they are ready to buy,” he said. “We have had seven years of a downward market, so they would feel sick if they sold today at £1.5m and then found they could have sold next year for £1.8m.”
While the selling market has kept on moving throughout 2020 and 2021 the rental market has taken a much, much bigger hit.
City centre rents are falling, not just in London but across the UK (and indeed much of the rest of the world). “Rents are down by as much as 20 per cent in some areas,” said Dell. “The market has been really hit by a lack of students and the disappearance of short lets.”
As a result, renting is cheaper than buying a home, for the first time in six years according to research by Hamptons estate agents.
“We are starting to see a bit of activity in the rental sector,” said Dell. “But if you are a landlord, even though it is very painful, it is much, much, much better to accept a lower rent now rather than have an empty flat.”
There could be better news on the horizon for landlords however, with indications that demand is starting to pick up again. Estate agent Chesterton’s reported a 17 per cent increase in tenant registrations in the capital between Aril and May.
This trend should accelerate as staff continue to return to their offices.
Some employers – notably Goldman Sachs – have delayed plans to bring all workers back into the office after the government extended lockdown restrictions. But it still plans to get everyone back at their desks after July 19. In September, Google’s staff will finally get a look at their state of the art office in King’s Cross with its indoor basketball court and rooftop running track.
“I am of the opinion that people are and will continue to return to the city sooner rather than later,” said Dell. “The hope that offices will all be converted into residential anytime soon is a pipe dream.”
This month we are delighted to report on a successful acquisition for long standing clients of Black Brick. When our clients first moved from Brussels to London we helped them find a rental home in Victoria.
When they decided to put down some roots they came back to us to help them buy an apartment. It had to be spacious – at least 2,500 sq ft – and it needed to have amazing views.
Their budget was flexible, but they wanted to be sure that whatever they spent they were getting good value for money.
Our clients were open minded about location so we looked at a whole range of locations from leafy Hampstead to upscale Kensington, as well as Fitzrovia and Marylebone.
It quickly became clear that finding them a showstopping view was going to be the real challenge.
Then we learned, through our network of contacts, that the penthouse in the building they were already happily renting in might potentially be available.
The building is a boutique collection of just 57 spacious New York loft-style apartments, with impressively high 2.9m ceiling heights and full height windows. There is a concierge, and residents have use of a private sky garden and gym.
The penthouse had been retained by the developer, who had rented it out. Not only was it the right size, 2,500 sq ft – but the panoramic views of London from its roof terrace were spectacular.
We negotiated to buy the apartment, off market, for £6.5 million or £2,474 per square foot, excellent value compared to other new apartments nearby. And they also got a parking space as part of the deal.
Our network is unrivalled. By dealing directly with the building’s freeholder we were able to source the perfect penthouse before it got near to the open market. This gave our clients the first mover advantage and meant they did not have to compete in a potential bidding war for their perfect London home.
This month we are delighted to bring to market an unmodernised freehold building comprising an upper maisonette on the ground, 1st, 2nd and 3rd floors and a self contained two bedroom apartment on the lower ground floor. The building provides the perfect opportunity for a developer or owner occupier wishing to take on a project and create a home tailored to their own tastes.
Berkeley Gardens is a beautiful tree lined street running between Kensington Church Street and Brunswick Gardens. The 265 acres of Kensington Gardens are less than a 10-minute walk away, whilst Notting Hill Gate is less than 5 minutes.
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