October 2024

Black Brick’s Budget Wish List

Ever since Sir Keir Starmer stepped into the Downing Street garden and issued a warning that the forthcoming budget would be “painful”, commentators have been predicting a whole range of possible tax raids.

Black Brick’s view is that imposing indiscriminate tax hikes is a short sighted approach. What a Government looking for growth, prosperity, and a healthy, active housing market should be doing is encouraging people to buy, sell, invest, and, most of all, remain in the UK.

Capital Gains Tax

It is widely anticipated that CGT for second home owners and landlords will be increased from a current maximum rate of  24% to up to 45%. Across the UK, landlords have already begun voting with their feet and selling up – Rightmove has revealed that almost one in five of homes currently for sale has previously been rented, compared to 8% back in 2010.

But CGT is only the latest travail to have hit UK landlords in recent years – they have already endured the phasing-out of mortgage interest tax relief, tighter rules on tenant evictions, and more onerous safety regulations.

And this gradual squeeze has had unintended consequences which have rippled right through the housing market.

“George Osborne poured glue into the housing market when he increased stamp duty and ended landlords’ right to have a mortgage as a tax deductible expense,” said Camilla Dell, Managing Partner at Black Brick.

“It did not solve the housing crisis and it has created a really bad environment for renters. There is not enough supply, build to rent has not filled that void, and landlords have just been battered in the press when most of them are providing an excellent service. You have now got dwindling supply and that is a really bad thing.”

In Cornwall, Anna Sharp of Black Brick’s country department, is particularly concerned about second home owners, who are simultaneously being hit with Council Tax surcharges, and the end of the furnished holiday lettings tax regime, which had excluded them from the end of interest rate relief.

“All of this is affecting investment buyers,” she warned. “Holiday let bookings are down 37% in Cornwall this year, so change would have occurred naturally. This is forcing a lot of people to sell, but will not solve the housing crisis in Cornwall, because a lot of these homes are priced above £500,000 and local buyers are not able to afford them.”

Non Doms

One change the Government has already confirmed is a dismantling of the Non Dom tax system, which currently allows high net worth individuals to live in the UK and pay tax on their UK income only. Despite this, the latest data shows that in the 2022/23 tax year the 74,000 Non Doms paid, collectively, £8.9bn in tax.

“If we get rid of Non Doms, we are just waving that off,” said Tom Kain, a Partner at Black Brick.

Let’s hope that Rachel Reeves is now finally listening to tax experts. Rumours are that the Chancellor is now considering watering down the changes amid concerns it will raise no money.

Inheritance Tax

The other big issue is IHT, currently charged at 40% of estates worth more than £325,000. In reality, however, there are many exemptions and only 5% of deaths are taxed in the UK, often at much lower rates. Older homeowners have been particularly spooked by the prospect of paying more and, possibly as a result, another trend highlighted by Rightmove has been a surge in the number of large houses for sale. “I definitely saw this trend emerging in the last year of people who probably should have moved in their late 70s and early 80s but had put it off because of the pandemic starting to downsize,” said West Country specialist Rupert Stephenson, of Black Brick’s Country & Coast Department.

“They wanted to quickly pass on their wealth to their children.”

Stamp Duty

Black Brick’s Rupert Stephenson thinks that pushing older homeowners out of their homes with the threat of higher taxes is unfair. A more humane, effective alternative would be to use less stick and more carrot.

Late last month, the Organisation for Economic Co-operation and Development (OECD) called for Stamp Duty, which it argued hinders people from moving to pursue better job opportunities or downsizing, to be scrapped.

Stephenson thinks that getting rid of Stamp Duty for both downsizers and first time buyers would get the property market moving again. “It would be good for the economy as a whole – house builders, white goods purchases, you name it. Downsizers need to be encouraged, but punishing them with tax is social engineering. People want stability, not loads of changes all the time.”

 

 

Fortune Favours The Brave

This past summer has been as unsettled as the weather in Prime Central London (PCL) – and courageous buyers have been able to turn the situation to their advantage.

The total number of transactions was down 7.5% year on year, according to the latest research by LonRes.

At the top end, £5m+ transactions were down a massive 47.2% compared to last year.

On the plus side, the number of homes currently under offer is level pegging with the first eight months of last year, found LonRes, while the average sale price has held firm at around the £1,300 per sq. ft. level.

With new instructions up what all this means is that buyers have plenty of choice at their fingertips, and right now they are firmly in the driving seat. In a buyers’ market, great deals can be made.

“The amount we have saved our clients is significantly up this year,” said Dell.

So far in 2024, thanks to our negotiation skills, Black Brick clients have saved an average of 9% from the list price. This is up from 6% over the same time period last year, showing how the market in 2024 is turning into more of a buyers market.

Our biggest discount of the year so far was on behalf of clients looking for a family home. They liked a property in Hans Place, Knightsbridge, but the list price of £13.5m was well above their maximum budget of £10m. We advised them to hold fire because we thought the property was overpriced. Seven months later, its asking price had been slashed and we were able to secure the seven bedroom house for £10,033,560, or a very competitive £2,385 per sq ft.

Beyond the ability to drive a hard bargain, the buyers’ market is being felt in other ways. In normal circumstances, Black Brick would have to work hard to find one or two properties which matched our exacting clients’ requirements. Nowadays, we can show them half a dozen or more.

“It is really unusual to have so much choice in prime central London,” said Dell.

Back in Cornwall, Sharp is also amazed by the sheer quality of the stock out there – a stark reversal of the situation during the pandemic when buyers were flowing away from cities and there was almost nothing to buy: “We have so many houses which have never been on the market before, and they are sticking not selling,” she said.

The lack of competition is also noticeable in London. “Nobody is bidding – even on the really good properties in super prime locations,” said Kain. “If you are willing to swim against the tide, it is all there for you.”

The situation reminds Dell of the financial crisis, when few buyers were willing to stick their heads above the parapet but those that did got some really outstanding deals. “It is a time of opportunity,” she said. “For buyers that are brave, the next few weeks and months could be really great.”

 

Home A-Loan

The mortgage landscape is slowly becoming more favourable to house buyers, and the knock on effect on sections of London’s market is already clear.

Two year fixed rate deals finally fell below 4% after Santander launched a 3.99% product. Admittedly, it is only available to buyers with 40% deposits, but it is still the lowest rate for a two-year fix since 2022.

Last week, Nationwide announced plans to allow first time buyers to borrow six times their income on five or ten year fixed rate deals, dramatically increasing their spending power.

Tom Kain is optimistic that lower rates plus more choice will boost London’s suburban markets, and he is expecting more good news from the Bank of England over the coming year.

“In prime outer London, the sub £2m market is pretty competitive and another drop in interest rates will help that market,” he said. “Speaking to mortgage brokers, they expect to see rates down to about 3.75% by the end of next year.“

Mortgages are a moot point in PCL where many buyers don’t require finance – half of Black Brick’s clients in the first nine months of 2024 were cash buyers, compared to 53% during the same period last year.

But in the West Country, Stephenson said that lowering rates had been having a positive effect until fears about the contents of the budget began to swirl.

“It was making a big difference. There was a general feeling of optimism until the government announced that the budget was going to be terrible, and that has caused people to sit on their hands again,” he said. “All optimism has dissipated.”

 

 

Black Brick News

Black Brick’s work extends far beyond the UK and next month Camilla Dell will be in Dubai in November, before moving on to Riyadh, where we are sponsoring a High Net Worth Advisor event at the Hyatt Regency Olaya, in Riyadh.

There will be panel discussions and presentations on international investment trends, the UK real estate market, and succession and governance, followed by a reception, and dinner. If you are interested in attending the event on November 12th, please email kate.abbott@black-brick.com

 

 

Acquisition Of The Month: Cameila House, Paddington Gardens W2 – £2,952,000

Our Middle Eastern clients wanted to buy a modern three-bedroom second home in Prime Central London in a lively location close to cafes, shops and restaurants.

We decided to go one better for them and put together a shortlist of properties to view, including a brand new four-bedroom penthouse apartment with a generous roof terrace in a new building. Paddington is very much an up-and-coming residential location, with billions of pounds worth of inward investment in recent years, and great transport links to Heathrow Airport.

With an asking price of £3.28m, the property was well within their £4m budget and with their approval, we went ahead and negotiated hard with the developer, eventually securing them a 10% discount.

They ended up paying less than £1,600 per sq. ft, which represents great value for a new build penthouse in Zone 1.

 

 

Rental Of The Month: Heron Place, Marylebone W1 – £3,500 per week

Our clients were relocating from the Caribbean to London with their two children and requested our help to find them a three-bedroom apartment to rent while they found their feet.

Their children were already enrolled in local schools, and we took them to see a nearby apartment before it went onto the fast-moving rental market – our strong relationship with the letting agent helped open the door for us before anyone else.

Our clients made a fast decision that the property was perfect for their needs, and we went ahead and negotiated a 3% discount from the asking price.

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