September 2021

Red, Amber, Green

The housing market might have coped better with the pandemic than anyone could possibly have predicted last year but London’s housing market is, officially, in the doldrums.

The current Land Registry house price index makes pretty dismal reading for those with an interest in real estate in the capital. It has recorded the lowest annual price growth of any region in the UK – an uptick of just over 6 per cent since last summer, compared to an average of more than 13 per cent across England.

But London is a house of many rooms. To understand what is going on as the world gradually starts learning how to live with Covid-19 requires a deeper dive into the data:

 

A reversal of fortunes

Traditionally London has always been considered the toughest place in Britain to buy a home. But a year of lacklustre house price growth has begun to narrow the gulf between incomes and property prices.

Analysis of the market in 60 UK cities by Halifax found that the cathedral city of Winchester, in Hampshire, is now the most unaffordable place to buy in the UK driven by an ongoing shortage of stock plus an exodus of buyers out of London and the home counties now that a daily commute to the office is no longer required for many.

A typical home costs 14 times the city’s average income of £45,000.

Oxford, Truro, Bath, and Bristol make up the top five most unaffordable cities, with London in sixth place.

Despite this the disconnect between income and prices still remains a huge challenge in the capital’s mainstream market with the average house price-to-wages ratio a punishing 11.

 

A market stuck in slow motion

Rather like the traffic light system currently governing our holiday choices, so London’s property market has become deeply polarised over the past 18 months.

The brakes are still firmly on in Prime Central London (PCL) where the continued absence of overseas buyers is suffocating demand for property, in particular for flats.

As a result, prices have increased by a well below inflationary half a per cent in the last year according to Savills.

“Homes are still selling in PCL, but transaction numbers are certainly down … [compared to before the pandemic],” said Camilla Dell, managing partner of Black Brick.

“We have had the odd international buyer here and there who has been able to get here, and who has been thinking about buying here for some time. We are seeing an increase in domestic buyers who are looking for a family home – 40 per cent of the clients we have helped buy in PCL, in the last year have bought houses and 54 per cent have been UK domestic clients. In a non-pandemic year, we would typically see around 60 per cent of clients coming from overseas”.

Perhaps slightly counterintuitively what this means is that there is now a real opportunity for buyers who would like a London pied a terre and are brave enough to swim against the tide to step in and strike a great deal on apartments. “There are good deals out there,” said Dell. “It is a good opportunity, if you can find the right thing because stock is quite limited because it is not a brilliant time to be selling.”

The reverse is true for buyers in search of a house, however. “Prices are so over-inflated,” said Dell. “There is such a shortage of stock that prices have gone up by ten per cent in some places.”

 

Crystal ball gazing

Looking forward the prospects for PCL (Prime Central London) are looking, well, reasonable.

While prices have barely changed in the past year an upbeat report from Coutts pointed out that while PCL prices are currently 12.9 per cent lower than they were at the peak it believes values have started picking up.

Properties are selling a little faster too – the number of days between listing and exchange have fallen from 170 days to 150 days in the past year.

Crucially, as travel restrictions start to slowly loosen overseas buyers, so crucial to the health of the PCL market, are coming back and there should be plenty of pent-up demand to keep them coming as international travel becomes easier.

“Now that places like Qatar, Saudi Arabia, and the United Arab Emirates are on the amber list for travel I am seeing buyers again – face to face,” said Dell.

“They need to be vaccinated and take a test after two days, and test to release after 5 days, but they are happy to do that and certainly there is no hesitancy about us being out of the European Union – they really don’t care.”

Indeed, a new study published by the European Banking Authority survey found that just 95 high earners left the UK during 2019, taking the total to 3,519. Given that pre-Brexit it was predicted that up to 100,000 financial service jobs could evaporate once Britain was out of the EU this is very encouraging news.

 

Fringe benefits

Beyond PCL is prime outer London, the slightly clunky collective name for the affluent, leafy suburbs where houses cost almost as much as they do in Zone 1 despite their Zone 3 and beyond locations – think Hampstead and Highgate to the north of London, Wimbledon village and Richmond to the south west, and Dulwich and Greenwich in the south east.

According to research by Knight Frank prime outer is outperforming prime central with some impressive price jumps – despite the ending of the Stamp Duty holiday. Wimbledon was the game, set, and match winner with price growth of 10.5 per cent in the year to June.

These are the kind of places which Dell says tick all her buyers’ current boxes: leafy, with lots of open space, large detached houses with good sized gardens, and excellent high streets with plenty of local facilities.

“It has been a very, very heated and very competitive market,” said Dell. “A lot of homes are being sold off market, and sales have become a real bun-fight in some cases.”

In this kind of overheated enclave competition is so fierce that buyers are having to make compromises to secure a home just where they want it. This might well mean taking on a house which needs plenty of renovation, and savvy vendors will often acquire planning consent to modernise and extend upfront in order to tempt buyers into a project by removing the first hurdle. “There is such a shortage of stock that people are certainly considering homes in need of modernisation,” said Dell. “They accept the fact that they won’t be able to move in for a year or 18 months.”

 

The dormitory suburbs awaken

The drive for space – inside and outside – plus the ongoing ability to work from home is driving buyers into uncharted territories on the fringes of the city. Like a baked Alaska, London’s property market is currently ice cold in the middle but baking hot around the outside.

Of all the prime markets in the UK the latest Savills price forecasts suggest that it is London’s suburbs which will see the strongest price growth between now and 2025. It predicts 26 per cent growth in suburbia, compared to 22 per cent in the commuter belt, and 18.7 per cent in central London.

Underpinning this optimism is a general optimism about the state of the economy after 18 months of turmoil. The economic research consultants Pantheon Macroeconomics point to the stable jobs market, relatively low unemployment, and falling mortgage rates as signs that the property market’s recent revival is unlikely to falter in the short to medium term, although the impact of the end of the furlough scheme at the end of this month may cause a hiccup or two.

“These are areas which haven’t really seen much in the way of a boom over the past 15 years,” said Dell. “I guess it is about time that these areas had their moment, and what with Covid-19 and people moving out for more space, that moment could be now.”

Recent research by analysts TwentyCi shows almost 100,000 homes in the UK have increased in value to pass the £1m mark since the start of the pandemic – and many of them are deep into suburbia. According to Knight Frank, which has earmarked locations where one in five sales of homes have been in the £1m-plus bracket in the last year, these areas include Mill Hill, in north London, and Kingston upon Thames, have made the list for the first time during the pandemic, along with top-drawer commuter towns and villages like Tunbridge Wells in Kent, and Bletchworth, Surrey.

 

Acquisition of the month 1: Bassett Road, Notting Hill, W11 – £1,360,000

Our client was a British expatriate living in India, who was looking for an investment property in Prime Central London. His budget was up to £1.5m and his plan was to rent the property out. That meant it needed to be in a great location with good transport links and local shops, bars, and restaurants, and in great condition in order to attract top notch tenants.

Notting Hill clearly ticks the location box, and Black Brick found a beautifully refurbished two bedroom apartment which had a real “Soho House aesthetic” to tempt young professional buyers. To satisfy the post-pandemic desire for private outdoor space it even had a terrace. A deal was agreed at £40,000 less than the asking price and contracts were exchanged within four weeks.

We guided our client through several different locations in prime central London, picking out opportunities for them to consider.  We set up a viewing to coincide with a visit to London, so they were able to make the most of their time and expedite the purchase of this ideal property.

 

Acquisition of the month 2: Wyles House, Hackney Gardens, E8 – £702,000

Our client was first time buyer after his first home. His inexperience, plus the demands of his job in the music industry, meant he was struggling to find a suitable apartment and needed clear, balanced advice on how to handle the leasehold system, and how to negotiate for a property in a highly competitive market.

We found a smart duplex apartment with two ensuite bedrooms half a mile from the open space of Hackney Downs and handy for Hackney’s bars, restaurants, and transport links. It was over budget, and without us he would probably have discounted it on that basis, but we were able to negotiate a £47,000 (6.3 per cent) discount on the asking price.

We know the market intimately across all postcodes. Our knowledge and contacts threw open the doors of this one-off opportunity.

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