26th February 2022
Goodbye self-isolation and farewell face masks, the war against Covid-19 has entered a brand-new phase.
With all legal restrictions swept aside at the end of last month, it looks like the transition back to normal life has finally begun.
We are, of course, expecting a few bumps along the way, but the early indications are that the property market has heard the news and is responding accordingly.
Sadly, as one war seems to be nearing it’s end, another has started. We feel it is too soon to say what impact the war in Ukraine and Russian sanctions will have on London property, and our thoughts and prayers go out to anyone directly affected by the appalling situation currently unfolding.
One of the key motifs of the pandemic property market was the mad rush to the country as buyers trapped in small apartments without outdoor space, and families who had been mulling a move for years, suddenly decided to get out of dodge.
This year the great retreat from urban life appears to have gone into reverse.
According to analysts MediaVision, the number of buyers searching online for homes to rent or buy in the capital has leapfrogged. At the same time research on homes in Devon and Cornwall has collapsed. Online search behaviour is a crucial early indicator of how consumers will behave down the line. Estate agent Chestertons, meanwhile, has reported that it conducted 35 per cent more viewings on London homes in January this year than it did in 2021, while Knight Frank said its number of new prospective buyers was 72 per cent above the five-year average.
“We are certainly inundated with enquiries at the moment,” said Camilla Dell, Managing Partner of Black Brick. “It is really busy. The most common request is for homes with gardens in leafy suburbs – there is such a backlog of people who want to make this move but haven’t been able to do it over the past couple of years. There is also demand for central pieds-a-terre at the £1m to £3m level.”
While the demand is certainly there, finding people willing to sell family-sized homes is still proving a real challenge. A lack of supply of homes for sales has been a problem since the start of the pandemic and one which shows no sign of easing off. Knight Frank said the number of new instructions in January was down 12 per cent on 2021 – and don’t forget the nation was in lockdown at the time.
“It is incredibly difficult to get sellers to move because they can’t find anywhere to move to,” said Dell. “The supply constraint affects vendors as much as it does buyers.”
Few vendors are keen on the idea of moving to a rental while they hunt for a new home, partly because of the cost and aggravation of doing so, and partly because in a rising market getting off the ladder is a risk. “They fear being priced out of the market,” said Dell.
Caspar Harvard-Walls, partner at Black Brick, believes the high cost of moving, notably Stamp Duty, is a major deterrent for buyers who might otherwise consider moving on to a more manageable-sized home. “It is just basic maths,” he said. “Selling in a rising market is not necessarily something you want to do, because you are selling right at the beginning of an upward curve.”
London apartments, particularly those without a balcony or garden, have been a really hard sell with prices falling off across most of the capital.
But that is another trend which is starting to reverse in 2022.
Estate agent Pendletons said that rising rents are pushing young buyers to stretch themselves to buy a first home and as a result prices for flats are outpacing the overall housing market in five London boroughs, including Hackney, Greenwich, and Tower Hamlets. In eight other boroughs, from Wandsworth to Islington and Westminster, they have almost caught up with the wider market.
“We have just been asked to find a flat in Canary Wharf for an American buyer and we haven’t seen one of them for a long time,” said Dell. “We are starting to see overseas buyers coming back with enquiries, as well as people who like the idea of having a London flat, possibly for their children.”
Stimulating demand in the domestic apartment market is the introduction of a range of new financial products aimed at the Henry – an acronym which stands for high earners, not rich yet. These potential buyers earn big but don’t have big enough cash reserves to put down a hefty deposit. To assist these buyers onto the ladder, firms are starting to provide medium-cost loans to help them cover deposits and buying costs.
“As we go into a rising market, people do start to feel more confident and there are going to be a lot of this kind of alternative to the traditional bank mortgage going forward,” said Harvard-Walls.
At the other end of the market sits the Ultra High Net Worth Individual, whose budgets and requirements are very different from the rest of the market.
Last year, according to Savills, more than 500 homes priced at £5m or more were sold in the UK – the highest number since the prime market was flying back in 2013 before any of us had heard of Covid-19 or Brexit. The vast majority of those top end deals were, of course, struck in London as well as the Home Counties.
Amongst their number was the sale of a mini estate in Surrey, brokered by Black Brick for an anonymous client who paid almost £30m.
One sour note, and an issue the owners of top end homes need to carefully consider, is the level of privacy likely to be demanded by buyers at this level.
“Buyers like this tend to be very security conscious, and they don’t want the public to be able to access floor plans and You Tube tours of their house,” said Dell. “That information can potentially pose quite a security risk and it does bring into play the advice agents are giving to owners of these high value assets. If it is quite obvious that the buyer is going to be an Ultra High Net Worth Individual then it is worth thinking about how to market the house, as they are not going to want to discover that it has been plastered all over the internet.”
During the early years of the 21st century many British investors saw a buy to rent property as a fantastic investment. Amidst rising prices, the government moved to clip the wings of these amateur landlords in April 2017, making their investment far less tax efficient and therefore less profitable. Some owners promptly sold off their rental properties, and fewer new buyers entered the market.
The end of an era, it seemed, because a toxic combination of high entry costs, falling capital values, no opportunity to offset mortgage interest payments against tax, falling rents, and the risk of long void periods during the pandemic, has made buying a little rental flat start to look like unappealing proposition.
But five years is a long time in property. In Prime Central London rents leaped by almost 20 per cent between January 2021 and January 2022 – the biggest jump since this index began. In prime outer London rents rose almost 17 per cent in the same period as renters return to the capital.
Meanwhile, the average asking price for a property in Britain rose by £7,785 in February, according to property portal Rightmove.
“We are also starting to see capital growth coming back into the market,” said Harvard-Walls. “As that develops, I would not be surprised if buy-to-let makes a comeback in the next year, because it makes more sense when prices are going up and because interest rates are very low still.”
Our clients wanted a three bedroom apartment which would double as a pied-a-terre they could use, and a place for children, two of whom are studying in London, could also use as a base.
They love Marylebone, a hugely popular choice right now, and a lack of stock is a real problem, particularly for new homes in the under £3m price bracket.
Black Brick was able to show them a newly-refurbished flat before it had gone onto the open market which had everything they wanted – great light, good views, parking and porter services.
We negotiated the sale and the good relationship we had forged with owner and agent meant we were able to see off a last-minute offer from a would-be gazumper even though they offered to top our offer by £100,000.
For more insight into how buying agents help their clients find that perfect property, Tom Kain, our senior buying consultant, took part in a recent webinar on what makes a house a home: https://www.black-brick.com/insights/webinars-podcasts/
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.