What the stamp duty charge for overseas buyers means for London

What the stamp duty charge for overseas buyers means for London

By George Hammond

The additional 2 per cent tax for non-UK residents could affect the housing market in a number of ways — but will it bring down prices?

A year ago this week, England’s housing market was temporarily closed as part of the first national coronavirus lockdown. Thousands of buyers were left stranded on the sidelines, unable to view homes or move forward with purchases. When restrictions eased seven weeks later, domestic house-hunters rushed back into the market.

But the number of international buyers, crucial to the property market in central London, has remained significantly reduced, due to limits on international travel. What is more, from April 1, non-UK residents will have to pay an extra 2 per cent stamp duty charge on any property bought in England and Northern Ireland.

With the added costs, will overseas buyers still want to invest in central London property when travel restrictions finally lift? “It’s the million dollar question,” says Chris Jones, a buying agent in the capital.

Thanks to the additional stamp duty and the strengthening of the pound against the dollar over the past year, overseas buyers will find a very different market to the one they were turned away from in March 2020.

“Dollar or euro buyers who were in the market before the pandemic might return to find that the whole show is going to cost them 10-15 per cent more than the last time they were here, which will hurt,” says Roarie Scarisbrick, a buying agent at Property Vision.

Overseas buyers are also facing the realities of Brexit and, for investment buyers, sharp drops in rents since the start of the pandemic that have squeezed already thin rental yields.

The new tax in particular will make non-resident buyers pause, says Scarisbrick. In London’s prime markets, the added costs are significant. On a £3m home, the surcharge for non-domestic buyers buying a second property will add £60,000 in taxes, bringing the total stamp duty bill to more than £423,000.

Across all price bands, the prospect of the tax has encouraged some buyers to accelerate their plans. Canadian Alex LeRose, 30, and his partner moved to buy “sooner rather than later” in order to avoid the new charge. LeRose says he also wanted to lock in a saving from the stamp duty holiday, which waives the charge on the first £500,000 of any home purchase. That holiday was originally scheduled to end in March, but has since been extended and will continue in some form until the end of September.

“Home ownership seemed out of reach if we didn’t take advantage of buying before the end of March. I think it was our only window of opportunity for a while,” he says.

 

Will the new stamp duty charge reduce property prices for others?

Introducing the new tax for overseas buyers “will help make house prices more affordable, helping people get on to and move up the housing ladder in line with wider objectives on home ownership,” according to ministers.

But while property experts blame stamp duty reforms in 2014 and 2016 for reducing prices in central London, the new non-resident charge may not have the same result. Those tax hikes hit buyers across the board. As a result, “while the buyers have written out the cheques, it is really the sellers who have paid as prices have corrected by the same percentage or more,” says Scarisbrick, referencing price falls in the expensive parts of London that have been hit hardest by tax rises in recent years.

The new surcharge, meanwhile, will only affect a narrow group, making it harder for overseas buyers to negotiate with sellers. “It will be a difficult argument for a buyer to say that they will simply pay 2 per cent less, if a seller would rather hold out for a UK buyer who isn’t affected,” says Scarisbrick.

Camilla Dell, a London buying agent with Black Brick, thinks the new charge will not derail overseas buyers completely. “It’s an additional cost, but you have to balance that with how a [prime] London property looks to an overseas buyer at the moment: prices are still down 20 per cent from the peak [in 2014]; the pound is up but still cheap compared to the dollar.”

On the ground, “people are not saying ‘we decided as a result of the 2 per cent surcharge that we’re going to hold off [buying],’” says Tim Hyatt, head of Knight Frank’s UK residential business. But, while he says the exchange rate and the cost of debt are much bigger factors, he is expecting a hiatus in overseas sales “while people work out what’s going on” after the surcharge comes in.

 

Absence of overseas buyers hits central London

The decisions made by international buyers will cause ripples across the capital’s housing market. There is no universal record of the proportion of London buyers from overseas, but there is a considerable international presence in the capital, particularly in the priciest central neighbourhoods and in the market for newly built flats.

In so-called prime central London, areas such as Mayfair and Knightsbridge, just under half of all buyers registered by Knight Frank in the past decade have been from overseas, according to the agency. Last year and in the first months of 2021, that proportion had slipped to a little more than a third, says Knight Frank.

The absence of overseas buyers over the past year has already changed which areas are most in demand. A prolonged decline in international interest would only make the transformation more marked.

“In the last year we’ve looked at areas popular with domestic owner occupiers: Hampstead Village, Richmond, Barnes. Those have been the real winner areas,” says Jo Eccles, managing director of Eccord, a property search and buying agency. “The areas which have faltered are the more international areas: Mayfair, Belgravia and Knightsbridge have been really hurting.”

Buying a London home, once a relatively straightforward transaction for overseas buyers, has become far more complicated, involving circuitous travel arrangements, quarantines and the risk of unexpected lockdowns. Many have stayed away as a result, meaning the pockets of London most popular with overseas clients have not shared in the price rises seen elsewhere in the country.

In the year to December 2020, prices fell 0.4 per cent in prime central London, according to Savills. In England overall, average prices increased by 7.3 per cent in the same period, according to Nationwide, the building society.

Overseas buyers have also been an outsized presence in the market for new homes in recent years. According to Molior London, which monitors the capital’s new-build housing market, overseas buyers accounted for at least a fifth of all sales to individuals last year.

Nic Budden, chief executive of estate agency Foxtons, says the level of overseas interest in London has dropped significantly in the past year. “Foreign buyers have diminished. There are new homes getting sold overseas directly, but that’s lower than it was in the past few years. In lettings, overseas students have basically disappeared completely.”

Tim Craine, head of research at Molior, says the tax will not deter all overseas buyers. “People buying a flat for a child [to] give to in 20 years [or those] wanting to get money safely overseas and protected by English law will be less worried about a stamp duty surcharge.”

Speculators, however, are likely to be put off, he says. International buyers eyeing luxury London flats as an investment, rather than a home, have been criticised for fuelling price rises in parts of the capital. But Craine says we should not be so quick to dismiss these “risk-taking” buyers. By buying up apartments before they are built, foreign investors have shouldered much of the financial risk faced by developers in the early stages of a project.

“They have played a massively important part in giving confidence for developers to commence,” he says. “Their absence means development is not happening.”

According to data from Molior, work started on almost 34,000 new homes in London in 2015. By 2020 that had fallen by almost 50 per cent, to 17,856 homes.

Raising property taxes risks driving buyers away from London and slowing down building, says Rob Perrins, chief executive of developer Berkeley Group, “I think London and the UK has to be careful that other cities do not become more alluring. We have to stop taking London for granted . . . Increasing tax makes people move elsewhere,” he says.

According to Molior, Berkeley Group is currently responsible for more sales to overseas buyers than any other developer in the capital.

 

Beyond the pandemic

Before any new tax is introduced, estate agents expect a flurry of sales — across the UK, transactions surged in February, as buyers tried to beat the original March deadline of the stamp duty holiday. But no rush in foreign buyers has been forthcoming this time.

“That hasn’t come in because of the travel restrictions,” says Dell. “We have seen some activity from clients quite keen to avoid paying the excess but not as much as one would have hoped. Not everyone is willing to fly and to quarantine.”

But sellers are optimistic about what comes next in part because of the UK’s rapid vaccine rollout. According to Scarisbrick, “Developers are confident that the cavalry will arrive once planes are back in the sky [and] will be populating south-east Asian cities with their roadshows as soon as they can.”

Key to understanding demand is the fact that most overseas buyers, like their domestic equivalents, “have their own motivations for buying and are not just speculators and investors”, says Scarisbrick. “Some are relocating, others have children here and plenty are insuring against political and economic instability in their own jurisdictions.”

International buyers looking for a new home in which to settle are unlikely to be put off by a tax hike, in other words. “The point is they have a practical need to own here and will have to roll with the punches,” says Scarisbrick.

Village feel and green appeal lure homebuyers to Dulwich

The growth in sales was strong over the summer, but activity is waning as the end of the stamp duty holiday draws closer?

On Crystal Palace Road in East Dulwich, there’s a new resident: Albus Dumbledog. He’s the golden retriever puppy that Cat Hughes and Kieran Holmes-Darby, a couple in their twenties, bought last month — and one reason for their recent move to this area of south London.

“It got to the point where a one-bedroom flat wasn’t big enough, and we’d saved up some money with some help from the family so were looking around London for a two-bed with a private garden because we wanted to get a dog,” says Holmes-Darby, who moved with Hughes one month ago from Crouch End in north London.

Sitting just south-east of Brixton, Dulwich has excellent schools and an urban village environment — spacious period houses, woods, parks and even a golf club — which have given it a timeless appeal to those looking to settle down, upsize and have a slice of countryside life while keeping one foot in the big city.

In the third quarter of 2020, the average property price in Dulwich was £815,229, up 7 per cent from the end of 2019, according to Land Registry data. The Countrywide group, which owns Hamptons International and other agents, says it has sold 65 per cent more homes in Dulwich in 2020 than in 2019, largely thanks to a summer boom: between July and September, sales were up 100 per cent, but have dropped since.

“It’s so popular at the moment because we’ve seen this real need for a sense of community — a high street and outside space,” says Caspar Harvard-Walls, partner at buying agent Black Brick. “People want to be a part of the area they’re moving to. They want to know people on their high street — who the butcher is, say hi to the guy they get their coffee from.”

Mel Carter, head of Dulwich sales for Hamptons, says a number of buyers had been considering areas like Clapham, but switched to Dulwich for something “a bit more rural” after being cooped up over lockdown. The prime spot is Dulwich Village, with its white wooden fingerpost signs and enormous Georgian mansions.

Neighbouring East Dulwich attracts a slightly younger crowd, as more of the homes are smaller terraced houses or flats, and its organic grocery stores and cafés adjoin the buzzier Peckham.

While those spending millions for homes in the village are unlikely to be greatly affected by the UK’s stamp-duty holiday — saving buyers up to £15,000 — for Holmes-Darby and Hughes, it helped offset the cost of an extra bedroom and a garden for Albus Dumbledog.

“Being in lockdown in a one-bedroom flat without a garden made us really realise we do need more space, and the stamp-duty holiday really accelerated the process because it made it more financially viable,” says Holmes-Darby.

Many move to Dulwich so their children can attend its top public and state schools. But Sam Lloyd, a 25-year-old hockey player, needed to be close to them for a different reason — his girlfriend is a teacher at Alleyn’s, one of several well-regarded private schools, including Dulwich College and James Allen’s Girls’ School.

Lloyd, originally from Derbyshire, says it’s a “nice halfway house” between the countryside and the rest of London. “Dulwich is more hectic, obviously, than Derbyshire but it’s got a proper village feel about it, so it’s the best of both worlds.”

That village feel is largely maintained by the Dulwich Estate, a charity set up in 1619 that owns 1,500 acres of land and controls development in the area. “There’s a terrific shortage of property in Dulwich,” says Gareth Martin of Harvey & Wheeler, an independent agent. “There’s been a little bit of building but not a huge amount, and you’ve got these huge green spaces that will probably never be built on.”

One recent change has ruffled feathers in the village, however. To increase space for pedestrians and reduce air pollution, Southwark council has closed some residential cut-through roads, as well as the junction between Calton Avenue and Court Lane in Dulwich Village.

While some approve, others say it is a nuisance that increases congestion on already busy roads and has left some residents spending hours taking the long route round to access residential roads near the closure. “I have had one or two people saying I don’t want to be in that location because of the road closure,” says Carter, who’s hoping the scheme is disbanded.

Road closures aside, activity in the local market has slowed, with England in its third national lockdown and the stamp-duty holiday due to end in March. By the end of 2020, the average price in Dulwich was £816,418, only marginally up on the third quarter, according to Hamptons’ Land Registry data.

“It’s by no means dead but it’s perhaps a little quieter than we’d expect at this time of year,” says Carter. “Maybe a lot of people just don’t want to look at houses at the moment, they feel that it’s just not appropriate and they’d rather wait till after the vaccine,” she adds.

Buying guide:

  • Dulwich is in the London borough of Southwark, where the annual council tax for homes in the top tax band is £2,881.
  • Dulwich does not have a London Underground stop, but there are National Rail services to North Dulwich, East Dulwich and West Dulwich.
  • In the past decade, the average property price in Dulwich has increased by just over 66 per cent; across London, the average has increased 61 per cent.

What you can buy for . . .

  • £4.3m A five-bedroom Grade II-listed family home with a large garden and a carriage driveway, just across the road from Dulwich College
  • £2.45m A six-bedroom, double-fronted detached Victorian house with a large garden and conservatory in West Dulwich
  • £730,000 A two-bedroom Victorian house with a south-facing garden in East Dulwich

The year the UK housing market defied gravity

The year the UK housing market defied gravity

But there are reasons to believe that the ‘mini boom’ will not survive into 2021

By Nathan Brooker

Aside from all else, 2020 has been the year that really put our homes through the wringer. The pressures of homeworking and schooling have pummelled them into submission. In our flat, the clutter has taken over: boxed and unboxed monitors crowd every table, laptops teeter on piles of books and sprouting from every corner is a tangled mass of cables, unclearable, like a bad case of Japanese knotweed.

At the start of lockdown, a colleague tweeted that we weren’t so much working from home, as living at work. He was right — except that in the office, the neighbours aren’t banging and crashing all day as they extend into the loft. Back in April, after the first lockdowns took hold in Europe, the UK and the US, worldwide Google searches for “DIY” hit record highs.

Sales of premium paint brands such as Farrow & Ball have surged; the managing director of Mylands paint even took a forklift truck driving test so that he could help shift orders.

Bitten by the home-improvement bug, my wife and I rearranged all the furniture in our living room. A couple of weeks ago, we moved it all back. Turns out there is no way of placing a sofa that will make a room bigger by 30 sq ft. Our homes have become everything to us this year: offices, schoolrooms, restaurants, weekend retreats — it is no wonder we’re sick to death of them. This is a level of contempt usually reserved for the weeks following Christmas when, after being cooped up with our families for days on end, traffic on property portals begins to rise.

Between December 26 last year and January 8, the number of daily visits to Rightmove increased by 71 per cent. This year is different, of course, but Camilla Dell, managing partner at buying agents Black Brick, still thinks people will find the time for some mindless festive scrolling. “This time of year people are always drawn to the portals for some good old ‘property porn’ — and perhaps this year more than ever as, let’s face it, there isn’t much else to do,” she says. “But, whether this will translate into a flurry of new transactions in the new year remains to be seen. I think a lot of people wanting to make a move this year already have.” Estate agents have come to celebrate the beginning of the year as
one of the busier times of the calendar.

But at the start of 2021, the “mini boom” in the UK property market might start petering out, as a series of government schemes that have helped shield house prices from the economic realities of the coronavirus crisis are withdrawn. The stamp-duty holiday — which waives the charge on the first £500,000 of any home purchase, saving buyers up to £15,000 — is due to end on March 31.

When it was announced on July 8, about 8.5m people logged on to Rightmove to see what was on offer; it was the portal’s busiest day of the year. The end of March is also when the business loan schemes are set to close, and new applications for the mortgage-holiday programme. A month later, the worker-furlough scheme will end.

We are, thankfully, in the process of rolling out the coronavirus vaccine, but it is anyone’s guess how long the UK property market can continue its gravity-defying run — which, given the fact that the UK is facing the worst economic
recession in 300 years, is a source of perpetual bemusement.

Last month, the average house price was 7.6 per cent higher than in November 2019, according to Halifax, the strongest annual growth rate for four years. Even now, the booming market is not being felt by everyone. Many first-time buyers have had their dreams upended by the impact of the pandemic on their incomes and savings. Many of them have struggled to get financing, as lenders have reduced the availability of higher loan-to-value mortgages — though this is slowly coming back.

Above all, I am reminded of the homeowners I spoke to this year who have had to put their lives on hold because they have been caught up in the cladding crisis.

One campaign group estimates that 1.93m people in England cannot sell their flats because they need a new fire-safety certificate, known as an EWS1 form, before lenders will offer mortgages to any would-be buyers. Among them, there will be thousands, perhaps hundreds of thousands, who must face spending this Christmas in homes they
do not feel safe in.

It rather puts a few monitors and unruly cables into perspective.

Have London’s new homes lost their lustre?

By George Hammond

Coronavirus is cooling sales of luxury new-build properties in the UK capital

Bargain hunters have arrived in London’s luxury new-build property market in the wake of the coronavirus pandemic. Camilla Dell, a London-based buying agent, has just taken on a client with £250m to spend. But instead of a single trophy home, they are investing in a few hundred one and two-bedroom newly built flats. This type of new home tends not to sell to owner-occupiers, according to Tim Craine, head of research at Molior London, which monitors the property market. “Twenty years ago, if someone was building a development scheme they would be really happy to sell one a week to a couple with a baby,” he says. Nowadays, “the notion [that] it’s a normal market selling to normal people doesn’t exist.”

Instead, he says, many brand-new homes — particularly those at the higher end of the market — are sold in bulk to investors and end up on the rental market. Dell’s client, an overseas investor, is one of them. They are hoping to buy about 250 apartments for roughly £1m each from developers who are keen to shift them quickly and are likely to do so at knockdown prices.

But while the pandemic has created opportunities for investors to buy new luxury flats, agents say it has driven away those wanting to live in them. So what is the outlook for London’s new-build homes?

Luxury flats are selling slowly –

The capital’s luxury new-build apartment market has cooled in the past five years, partly because of tax hikes on second homes and partly because of uncertainty surrounding Brexit. In Zone 1, where the most expensive properties are clustered, flats are selling at the slowest rate since 2011, according to Molior. At the current rate — 566 sales across all price brackets in the first three months of the year — it would take three years to sell all the completed flats in central London. Coronavirus threatens to cool the market further. Confidence has been shaken by the pandemic and, post-lockdown, data from property portals show that buyers are increasingly searching for homes in suburbia or further afield. “It was once a plus having the shared gym, spa, swimming pool and concierge,” says Dell. “In a world with a pandemic they might think twice and want to buy the freehold on a newly refurbished Mayfair town house instead.” Andrew Griffith, managing director of MyLondonHome estate agents, says one of his customers is pulling out of the purchase of a new-build flat to buy a house in Hampstead instead — cutting their losses and leaving a £110,000 deposit behind. “A number of buyers no longer want to complete [on new-builds] and just want shot,” he says.

Overseas buyers looking for homes for their children studying in London are another group he sees pulling back. Individuals from overseas accounted for about 6 per cent of total sales in the first quarter of the year, according to Molior. On a per-square-foot basis, new-build homes tend to be significantly more expensive than older properties in the same area, no matter how grand the latter. MyLondonHome is selling a three-bedroom apartment at Marylebone Square, a new development in central London. The property is 1,938 sq ft and costs £6.2m. A short walk away, on Upper Montagu Street, Knight Frank is selling a four-bedroom Georgian town house that has been newly refurbished and measures 2,623 sq ft for £4m.

A tough assignment –

Griffith’s company specialises in selling new flats for people who have committed to buying them from a developer, but have decided to pull out. The process is known as assignment, because it involves assigning the right to complete a purchase from one buyer to another. The original buyer will typically have made an offer on a property before it was built, having seen a brochure. When prices rise fast, as they did in London from 2009 to 2014, speculative investors put down deposits on unbuilt homes and, with luck, sell for a profit before the dust settles at the building site. But with London’s priciest homes having lost more than 20 per cent of their value since 2014, according to Savills data, the speculators are gone. Now the process has reversed, with contracts often being reassigned for a loss. A substantial portion of sales now are to corporate landlords who will put them on the rental market, or “flats sold halfway through [construction] to a fund”, says Craine.

According to Molior, of the 6,000 or so new-build homes sold across the whole of the capital in the first three months of this year, more than a third were sold to so-called build-to-rent operators — corporate landlords who rent out the flats to private tenants. There are some individuals who are still keen to invest in London property, however. “There is good interest from Hong Kong,” says Griffith. “[Buyers] want to get money out and London is the obvious choice — they tend to be in the market for new homes.” The Asian financial hub has long been a staging post on developers’ global sales tours.

A favourable Hong Kong dollar exchange rate and a fall in London prices mean the UK capital looks attractive for these buyers. Many want to move money out of a city on which China has recently tightened its grip with the imposition of a national security law, say agents. “Some overseas buyers are buying at a 40 per cent price drop [from the 2014 peak], ” says Rory Penn, head of Knight Frank’s private office. While the market has generally been slow, what interest he has seen has come predominantly from Asia. “If you’re buying from £10m-£100m and you can get 40 per cent off, it’s pretty compelling,” he says.

Is it the time to negotiate hard?

Some buyers will be compelled to buy new-build properties if they think they can secure a good discount. Whether there will be enough to soak up the supply is another question. In 2014, demand for new-builds was so strong that just 139 completed apartments were unsold across London. Last year, that figure was 3,829, according to Molior. Developers have pulled back in response. Work started on more than 15,000 new inner London homes in 2015, and on just 6,000 last year. But there are pockets of the capital where the supply taps have not been turned off. According to Buildington, a database of London developments, there are close to 1,000 projects in the pipeline, more than 200 of which are expected to complete this year. Some of the priciest are in Canary Wharf. The 239-metre-tall Landmark Pinnacle alone will bring more than 750 apartments to market this year, with a starting price of £425,000.

There are still thousands of new homes in the works at Nine Elms, on the south bank of the Thames, one of London’s biggest development hotspots. At some London schemes, lenders have put pressure on developers to sell, according to Charles McDowell, a central London estate agent. That may mean opportunities for buyers looking to negotiate hard. But anyone trying their luck will be competing with investors such as Dell’s client, buying now in the hope they can draw rental income at a later stage. “There are opportunities out there,” says Griffith. “People are expecting to see prices go down — the only question is by how much they will come down — not if.”

Calls grow louder for full-scale overhaul of UK property tax

Stamp duty has been fiscal weapon but whole regime deemed too complicated

By James Pickford

Stamp duty has become the UK government’s “fiscal weapon of choice” in the housing market but calls for a full-scale overhaul of the property tax are growing as new surcharges and reliefs spark criticism of an increasingly unwieldy regime.

The charge, paid by buyers on property purchases above £125,000, has been subject to a string of tweaks and accretions in the past six years, as ministers have used it to favour some purchasers, such as first-time buyers, with reliefs and discourage others, such as buy-to-let landlords, with extra rates.

The next group set to find itself paying more is non-UK-resident buyers, after Whitehall officials told the FT this week that a stamp duty surcharge of up to 3 percentage points on overseas purchasers of UK property was expected to be included in the Budget on March 11. Receipts from the additional tax are to be used to tackle rough sleeping.

The measure comes after a 3 per cent surcharge was introduced in 2016 for those buying second and buy-to-let homes, in a move aimed at dousing activity among landlord investors. If the new surcharge on non-residents is confirmed at levels close to 3 per cent, overseas buyers who already own a home could end up paying up to 18 per cent in stamp duty on the portion of the purchase price over £1.5m.

Camilla Dell, managing partner of buying agent Black Brick, said the 2016 surcharge, particularly for those whose house sale falls through leaving them with two properties, had created new administrative difficulties. “The whole property tax regime has just become too complicated. It’s a headache,” she said.

The latest fiscal salvo targeting overseas buyers sent a curious message under a post-Brexit government with bold international ambitions, she added. “I don’t believe foreign buyers are the root cause of problems in the housing market. I think they’re an easy target for the government because they don’t vote.”

In the 2017 Budget, then chancellor Philip Hammond unveiled stamp duty relief for first-time buyers of homes worth less than £500,000. This followed another major change in 2014 — one broadly welcomed by the market — when his predecessor George Osborne did away with the old “slab” system of stamp duty, under which a single rate was charged on the entire value of the property.

It was replaced with a “slice” arrangement where higher rates only apply to the portion of the value above certain thresholds.

Even so, the “bolt-on” approach to stamp duty changes has drawn many detractors, far beyond the estate agents who habitually complain of its chilling effects on sentiment. Transaction taxes are anathema to economists and housing market experts who say they benefit those who stay put and penalise those who move. Neal Hudson, director at housing market research firm Residential Analysts, said: “It’s a stupid tax and not how you would go about taxing property if you were to start from scratch.”

The Institute for Fiscal Studies, a think-tank, has described it as a “dysfunctional” tax and has urged Rishi Sunak, chancellor, to reform council tax to increase charges on more valuable properties. The valuations on which council tax is based have not been updated since 1991.

The Royal Institution of Chartered Surveyors argues that the changes since 2014 have helped first time buyers but deterred existing homeowners from considering a move. “We therefore believe government should establish a review to address all fiscal measures which impact housing supply, the taxation of homeowners and landlords, and encourages innovation and improved infrastructure,” it said.

Even Sajid Javid, who resigned last month as chancellor, has spoken out against the current state of stamp duty, telling the Times last weekend that it was “too high”, “very distortive” and “needs significant change”.

But the political appeal of a root-and-branch overhaul is unclear, particularly when the government is absorbed in managing the coronavirus crisis. Stamp duty has become an increasingly important source of tax revenue in recent years, generating £8.37bn in tax receipts in 2018-19, according to provisional government figures. Much of this is accounted for by sales of homes in London and the south-east. Transactions in these two regions brought in £5.07bn, 61 per cent of the total for England and Northern Ireland.

In light of prime minister Boris Johnson’s repeated commitment to “level up” economic inequalities between regions, the political gains from forcing through radical changes to a tax that is largely paid by wealthier groups in the south of England are questionable.

Politicians last year flirted with the idea of switching stamp duty from a tax paid by the buyer to the seller, but economists argue that such a measure would simply raise prices. Longstanding alternatives in the shape of a land tax or reform of council tax, though backed by economists, remain unpalatable for Conservative MPs mindful of their constituents’ economic interests.

When the Daily Telegraph reported last month that stamp duty cuts were under discussion in government circles, it was notable that any reductions were said to be tied to the introduction of a “mansion tax”, said Lucian Cook, residential research director at estate agent Savills.

“That gives you a fairly strong clue as to the extent to which the government are going to be protective of their tax revenues. They were looking for a means by which they could make any changes revenue neutral.”

Mr Cook concluded that the prospects of a thoroughgoing revamp of Britain’s housing transaction tax are remote. “Stamp duty has become the government’s fiscal weapon of choice as far as housing is concerned. It is probably due an overhaul. The issue is whether anyone’s got the stomach to do it when it continues to be a significant cash generator for the Treasury.”

2020: London’s golden year?

Since the UK election, excitement about a market surge has been palpable. But who will benefit and who will lose? 

By Nathan Brooker.

Since the UK election, excitement has been palpable. But there are still turbulent times ahead.

Simon Rowell is thrilled with his new purchase. Last week, he picked up the keys to a two-bedroom flat near Clapham Junction station in south-west London, which he intends to rent out for about £2,500 a month. “I’m one of the dying breed of private buy-to-let investors,” he says.

Rowell, creative director for Bannenberg & Rowell, a superyacht-design company, predicts the London property market will pick up this year, so he has snapped up what he thinks will be a good investment before it is too late. The flat cost £700,000 — just £2,000 more than its sale price in January 2017, when it was new.  “That represents completely flat asset appreciation from the seller’s point of view,” he says. “I reckon that doesn’t last very long in London.” 

Many property agents agree. Since the Conservative party won the general election in December, some have barely been able to contain their excitement at the prospect of a 2020 surge in prices and transactions in the UK capital.

“I went from despair to elation in a matter of hours when the results were announced,” says Trevor Abrahmsohn of agents Glentree Estates, which specialises in homes for wealthy buyers. “This could be a golden year.” 

Agents are confident partly because the Conservative majority in parliament has released the Brexit logjam, but mostly because the Labour party, led by Jeremy Corbyn, did not win. Most agents were convinced that a Labour government would have targeted the UK’s luxury property market, with wide-ranging reforms to taxation and changes to laws for landlords. 

Now, UK house prices are expected to rise in 2020. Savills is predicting 1 per cent growth; Strutt & Parker says 4 per cent. Camilla Dell of buying agents Black Brick thinks these forecasts are too conservative. She says prices for London’s best luxury homes could rise 10 per cent in 2020.

“The attitude of sellers has already changed,” says Dell. “They have become much more confident and are likely to take a much firmer line on offers.”

The optimists were buoyed last week when Cheung Chung-kiu, the Chinese property magnate, agreed to pay more than £200m for a mansion on Rutland Gate in Knightsbridge, a price that makes the property the most expensive sold in the UK.  If agents’ predictions are right, which category of buyers stands to benefit — and which stands to lose — from a London property market surge? The FT asked experts and buyers what could happen over the next 12 months. 

Luxury estate agents have described the record-breaking Rutland Gate sale as evidence that London’s prime property market is recovering — and holds its appeal — after years of falling prices and low sales figures.

“A big sale like that is emblematic of the turn in fortunes that we have seen in the market since the election,” says Liam Bailey, global head of research at Knight Frank. He says the number of exchanges his agency dealt with in prime central London in December was the second-highest monthly total since April 2014, when the market was booming.

Marc von Grundherr, a director at Benham and Reeves, which specialises in selling London property to overseas investors, sets the scene: “After the election, we had people who I hadn’t spoken to in a couple of years ringing up, saying: ‘Marc, let’s really look now — what can I buy?’” In the past four weeks, von Grundherr estimates that 200 of his clients called in to their offices worldwide, interested in buying London property. 

Overseas buyers should find lower prices than in recent years — especially if they are US dollar buyers. According to Savills, the average price in prime central London has fallen by about 21 per cent since its peak in 2014. Once the currency exchange is factored in, dollar buyers today reap a discount of 38 per cent compared with five years ago.

They may soon get even more than that. Data published this week show the UK economy contracted by more than expected in November, adding pressure on the Bank of England to lower interest rates.  While worsening economic conditions may not be good news for domestic buyers, the prospect of a rate cut sent the pound below $1.30 on Monday — and the weakened pound has attracted overseas buyers in search of a bargain. 

But while some agents assume the recent flurry of prime London sales is an indication of renewed confidence, Neal Hudson, an analyst, says the uptick could be short-lived. He thinks that many of these buyers are from overseas and would have bought anyway, but are speeding through their purchase to beat an additional 3 per cent premium on foreign sales that was outlined in the Conservative manifesto. 

“I suspect people will keep a close eye on when that policy is likely to be announced,” he says. What will happen after it is brought in? “The [prime] market will probably tank and we’ll go back to continued whingeing about high rates of stamp duty and people wanting it cut to get the market moving again,” he says.

“First-time-buyer numbers have been fairly static in London for the past few years, and that’s likely to continue,” says Hudson. “The problem is that house prices are still far too expensive for all but the luckiest of the lucky.” 

Growing wages and falling prices have improved affordability, but not by enough. According to Nationwide, the average price for a first home in the capital was more than £401,000 at the end of 2019 — down from more than £419,000 at the beginning of 2018, but still 8.8 times the average London salary.  The most unaffordable period for first-time buyers was the middle of 2016, when the average property was 10.2 times the average salary.

High prices have led many people to take advantage of the government’s Help to Buy scheme, which offers buyers of newly built homes an equity loan of 40 per cent in London. The scheme, set up in 2013, has supported more than 210,000 sales in England, but from next year it will be restricted to first-time buyers before it ends in 2023.

Or, at least, that is the plan. Many property experts argue that it will be difficult for the government to wean the market off Help to Buy, and the scheme will either be extended or another will take its place. The Conservative manifesto said the government “will review new ways to support home ownership” after Help to Buy is withdrawn.  It also mentions “encouraging” a market for long-term fixed-rate mortgages, which could help reduce the size of the deposit that first-timers need.

Rosie Smith, 34, who works for one of the Big Four accounting firms, has been looking for the right two-bedroom apartment in north London for several months. She has decided against using Help to Buy. “I very quickly decided not to do that when I realised how much more expensive the homes are,” she says.  In October, research from Reallymoving, a price-comparison site for conveyancers and surveyors, calculated that first-time buyers using Help to Buy in London paid about 12 per cent more compared with those who bought new homes outside the scheme. 

“[Our] research indicates that the attractiveness is enabling developers to charge more for homes with Help to Buy available and encouraging first-time buyers to pay over the odds,” the company says. The so-called premium comes on top of the already hefty premium new-build homes command over second-hand properties — and neither can be passed on when it is time to sell.

Smith is now looking for a two-bedroom flat in Islington or Haringey for about £450,000. “I’m in no real rush to move,” she says, “but I have lived in the same place now for seven years, and in that time, I have spent £70,000 on rent. I’d rather be paying off a mortgage.”

In August, Rebecca Stott set up Found It London, a buying agency specialising in first-time buyers. She predicts circumstances will improve this year. “Their main problem has been that there is just not enough stock on the market,” she says. A more positive market sentiment could lead to more homes up for sale. 

Furthermore, changes to stamp duty for overseas buyers (as outlined in the Conservative manifesto) and the complete withdrawal of tax relief for landlords (which will come into force in April) will mean first-time buyers face less competition.

“There are always opportunities out there,” says Stott. “You just have to look for where the pockets of value are.” Stott recommends hunting in areas a little further away from Tube stations, for example, and — while this is not always easy — picking the right sellers.  “People selling now who bought three or four years ago are struggling to get the price they paid. But find the people who bought 10 or 15 years ago [and] there’s your opportunity.”

Government policy tends to focus on helping first-time buyers, which means those hoping to trade up to a bigger property are often overlooked — and there is little in the Conservative manifesto to suggest this will change. 

“Second-steppers are a largely forgotten segment of the housing market,” says Lucian Cook, director of residential research at Savills. “In London especially, their numbers have got pretty low.”

According to data from UK Finance, in the year to September there were 26,780 mortgaged movers in London — people who already have a mortgage moving to another property. That figure is more than 18 per cent lower than the 10-year average.  The decline in mortgaged movers is a national phenomenon. According to data from Zoopla, in 1988 the average UK household moved once every 8.63 years; in 2017, people moved once every 23 years — and in London, once every 26.5 years.

London’s second-steppers have been held up by the widening gap between the prices of flats and houses. In October, the average gap between a flat and a terrace house in London was £94,000, according to Land Registry data. In October 2009, it was just £30,000.

Mortgage regulation has made it harder to trade up, says Cook. Currently, regulation limits lenders and stress-tests applicants’ affordability. “A lot of people are sitting on a pretty decent pile of equity but are unable to bridge the gap to the next step on the ladder,” he adds. 

While the Conservative manifesto mentioned encouraging a new market for long-term mortgages to help first-time buyers, it is not clear if they want to relax the amount a person can borrow as a multiple of their salary — which is what ultimately limits second-steppers. And at this point, it is too early to tell if regulations will be relaxed when Andrew Bailey takes up his role as the new governor of the Bank of England in March.

“For most second-steppers, it is their need for more space that underpins their need to trade up,” says Cook, “and so many are going to have to relocate to cheaper markets — either cheaper places within London, or by moving out to the commuter belt.”

Gabriel Ng, a 27-year-old software developer, moved his young family from a two-bedroom flat in Barking to a four-bedroom house in London Square, a new development in Orpington, on the outskirts of south-east London. “We wanted a bigger home and better amenities close by,” he says. 

Life will be tough for buy-to-let investors in 2020. According to research by Richard Donnell, director of research at Zoopla, the number of mortgaged investors buying in London is down more than 60 per cent compared with 2015.

“Everybody is having to adjust to a completely new landscape,” he says. In 2016, the government made it more expensive to buy rental homes by adding a 3 per cent stamp-duty premium to the purchase of additional properties. In 2017, it started withdrawing the tax relief that landlords could claim back.  Before then, UK taxpayers renting out a property with a buy-to-let mortgage could deduct all mortgage interest payments from their tax bill, meaning they only had to pay tax on profits, not turnover. Because many landlords opted for interest-only mortgages, that was a substantial saving.  But from 2017, that relief was phased out by the previous Conservative government until April this year, when they will not be able to deduct anything.

Meanwhile, slowing house-price growth has reduced the potential for capital appreciation, and many fear the long-term impact of Brexit could affect rents if fewer companies and workers are attracted to the UK.

Donnell has compared the business case that investors would have faced in 2016 with today. Then, the average amount spent on a rental property in London was £437,000 with a gross yield of 4.3 per cent.  A lot of people are sitting on a pretty decent pile of equity but are unable to bridge the gap to the next step on the ladder Lucian Cook, director of residential research at Savills But at that time, if investors had assumed rents would have risen 3 per cent per year, and house prices would have risen 5 per cent (in 2016, they actually rose about 10 per cent, so 5 per cent would have felt pretty conservative), then they could have calculated their internal rate of return (IRR) at 7 per cent over 20 years. 

Today prices are higher, with an average spend of £476,000, and yields are a little higher at 4.4 per cent, but with more modest predictions for house price and rental growth (about 2.5 per cent per annum for both) then their IRR falls to 4.8 per cent over 20 years. “This drop in return explains why we’re seeing a drop in investors buying in London,” says Donnell.

The outlook for rental returns outside London are better — Donnell calculates the IRR in the north-west of England to be 8 per cent, for example. Nevertheless, London retains its appeal: “If you want strength and stability of cash flow, then of anywhere in the UK, London is still the best place to get it,” says Donnell. 

“In the analysis we have just done, the average rent in London is £1,800 per month; in Manchester, the typical investor is only getting £720.”  

A government survey released this month found 45 per cent of landlords in England have only one investment property, and 44 per cent became landlords to contribute to their pension.

“What does every pension investor want? An asset that performs in line with earnings growth because that is what they’re losing when they retire,” says Donnell.

Sometimes, real life — rather than mere market sentiment — brings an overriding reason to buy a home. For Rowell, the landlord who has just bought a flat near Clapham Junction, the potential for his family to use the property in the future was a big draw. 

“We have got teenagers,” he says. “On the basis that our kids hopefully will be young professionals themselves one day, this property gives us lots of options.” 

London’s property ‘flippers’ forced to sell at a loss

By George Hammond

A growing number of investors who bought new homes to sell on for a profit have got their fingers burnt

In Earls Court, west London, there is a flat that has just been built. Before anyone even moved in, this three-bedroom apartment had three different owners, and lost one of them almost £400,000.

The flat is part of what will be an 808-home project in Lillie Square, co-developed by Capital & Counties Properties and members of Hong Kong’s Kwok family. The scheme’s first phase went on the market in March 2014, just as property prices in London were beginning to crest.

The developers quickly found a buyer for the flat, who took on a £2.07m contract to pay for what was then merely a picture in a glossy brochure. The buyer’s hope was that it would grow in value and could be sold on — perhaps before it was even finished.

But then London’s high-end market turned and prices fell. Unable to complete on their contract, the buyer of the Lillie Square flat sold last month for £1.7m, 18 per cent less than they had paid the developer.

Buying unfinished property and aiming to sell it on quickly for a profit — known as flipping — was a safe bet in London immediately after the recession. Now, the odds have changed.

As prices fall, many property flippers are unable or unwilling to complete, so face either selling at a loss or losing their deposit, says Camilla Dell, founder of buying agency Black Brick, which represented the most recent acquirer of the Lillie Square apartment.

In 2014, 21 per cent of resales in recently completed developments were sold at a discount, according to property research company LonRes. Last year that number had more than trebled, to 67 per cent. At the same time, the size of discounts has ballooned. From an average of 2.2 per cent in 2014, to 13.1 per cent last year.

In some places, the markdown can be double that. “It’s 15-20 per cent in prime central London. South of the river it can be 25 per cent or upwards,” says Charlie Ellingworth, a founder of buying agents Property Vision. For dollar buyers, the falling value of the pound means “you could be talking about [a discount of] 40 per cent”, he adds.

Off-plan investors often rely on a process called assignment, where the right to complete a purchase is sold to a new buyer. Typically, the original party, the “assignor”, will have paid only a deposit to the developer when they contracted to buy off-plan and in assigning their rights under the contract they are looking to recoup their downpayment and more. Because stamp duty is paid on completion, this is another overhead that can be avoided by assignors. 

A seller in One Blackfriars has taken a hit of nearly £1m.

When prices were increasing, such transactions could provide handsome returns for assignors, without them ever being responsible for the physical property. Riverlight, a high-end Berkeley Group development in Vauxhall launched in 2011 and was completed in 2017. Soon after it went on sale, deposits were put down on two-bedroom apartments that cost roughly £700,000, says Andrew Griffith, managing director of estate agency MyLondonHome, which has sold a number of flats in the scheme. Two or three years later, they were able to sell on those homes for up to £1.2m. 

It is hard to get a sense of the current scale of London’s assignment market. Resellers value discretion and properties resold on the assignment market do not appear in Land Registry figures.

But a ring around agents marketing homes in the Thames-side Nine Elms development suggests flippers are common. One estate agency is listing four apartments in The Dumont, a Berkeley Group development that is not set for completion until 2020. How many of the listings are resales? All of them.

Next door in the Corniche, another Berkeley scheme, all but one of the properties listed by estate agency MyLondonHome are resales. “Most of them are people who’ve bought direct through the developer and want to avoid the stamp duty,” says Griffith. One buyer who paid close to £900,000 is now willing to sell for £100,000 less, he adds.

In the recently completed One Blackfriars — a glass monolith that towers over Blackfriars Bridge — one seller has taken a hit closer to £1m. Having put down the deposit for a £3.021m, three-bedroom apartment, they sold it before it was finished, for £2.25m.

“During the last bull market, many investors were exchanging on off-plan new-build properties with a view to re-assigning their contract for profit ahead of completion,” says Chris Jones, director of buying agency Warnerheath. With falling property prices, some investors have come unstuck, he adds.

The price you negotiate off-plan is the price you pay at the end, even if the market has fallen 30 per cent.

As well as speculators on the assignment market, there are plenty who will have taken out substantial loans to cover their acquisitions. Between April 2014 and March 2016, more than half of all overseas buyers in London’s new-build market took on a mortgage, according to research from the University of York.

“A lot of these overseas buyers are not cash-rich oligarchs or sheikhs, they’re middle-class Singaporeans or Malaysians, [people from] Hong Kong or mainland Chinese”, says Neal Hudson, director at Residential Analysts.

Some of those buyers will be “pretty unsophisticated”, says Ellingworth, and might well have agreed to a purchase “in a hotel in Hong Kong”.

Having done so, they have little protection against falling prices. “The price you negotiate off-plan is the price you pay at the end, even if the market has fallen 30 per cent. Your mortgage lender doesn’t care if it’s gone down. As the buyer, you can inject the equity yourself, or you fail to complete,” says Dell.

Distressed sellers are unlikely to be the only ones touting discounts. “The developers who want to offload their stock are undercutting the flippers,” says Jo Eccles, founder of buying agency SP Property Group.

Two-bedroom apartments in Riverlight, a Berkeley Group development in Vauxhall, launched in 2011 for a price around £700,000. Two or three years later, they sold for up to £1.2m. 

Slashing prices is a last resort for developers, who will instead dangle add-ons such as “a beautiful furniture pack or a parking space worth £75,000”, says Eccles. Even so, she says, a number of developers are accepting lowball offers in order to meet sales targets.

“We’re beginning to see 20-30 per cent [reductions] being considered by developers”, says Jones, who typically acts for clients buying in bulk. “Developers are looking to get deals done.” 

Faced with selling at a loss, a growing number are opting to take the “for sale” signs down and are falling back on the rental market or taking up residence. LonRes report that 68 per cent of the recently completed flats that came off the market last year were removed because of withdrawal rather than sale — compared with 34 per cent in 2014.

Rather than resigning to the downturn, some see opportunity. On a recent property search in west London, reports Jones, “it was very clear across the board that a lot of sellers had overpaid in 2014 and 2015”. Now, a number of them are actively looking to sell at a discount.

Their eagerness is not borne of financial distress: they want to upsize. If the market is down 20 per cent across the board, a £200,000 hit on a £1m home will be more than offset by a £400,000 discount on something twice the price. Those lucky enough to afford the trade-up might find a few sellers desperate to transact, even at a loss.

London’s cut-price mansions: expect more deep discounts

By Hugo Cox

When news broke that US hedge fund manager Ken Griffin paid £95m for a London mansion, it made headlines on both sides of the Atlantic. It was not the amount the billionaire founder of Citadel paid for the home that caught the attention of property pundits — he went on to make an even pricier purchase in New York several days later — but the price he did not pay. The 20,000 sq ft home near Buckingham Palace, remodelled by property developer Mike Spink and backed by private equity group Evans Randall, had an initial asking price of £145m and had languished on the market for two years priced at £125m. According to London buying agents, Griffin’s cut-price purchase last week may be just the start, as fears grow over the health of the city’s prime property market, spooking lenders and sparking an increase in heavily-discounted sales.

Falling prices and slowing sales of homes valued above £5m — transactions of such properties in 2018 were 36 per cent lower than in 2014, according to Savills — have led to banks and other lenders routinely revaluing homes downwards, agents say, and requesting more cash from developers who are already strapped. Many must now slash prices, accept low offers or face collapse.

I have seen more repossessions of super-prime homes in central London in the last year than in the 10 years prior,” says Roarie Scarisbrick of Property Vision, a buying agent focused on prime central London. Smaller, niche developers have been hit hardest, says Henry Pryor, another buying agent based in London. “A lot of the funders of these developments are offloading their positions, turning the screw on developers,” he adds. “The hedge funders who thought that property was a doddle are getting out.” “It’s worse for the single house developers, especially those who bought sites in 2013 and 2014 at the high point in the market,” says Scarisbrick.

Jonathan Harris of Anderson Harris, which arranges mortgages for luxury homes, estimates that more than half of London properties bought by private individuals for more than £5m include some type of mortgage. With banks’ appetites waning, these buyers are feeling the pressure. “It’s no secret that the bank valuers are extremely cautious at the moment: when they come to revalue something there is a loan on they will mark it down 10 or 20 per cent,” says Scarisbrick. A quarter of loans taken out at the market peak in 2014 have since faced a margin call thanks to the drop in prime home values, says Harris. “It depends on the asset: if the property is worth below £10m there is less urgency, but if you’re lending on a £15m or £30m property, things will be different.”

What do you get for £95m? 3 Carlton Gardens, St James’s London Behind the Grade II-listed, John Nash-designed exterior, 3 Carlton Gardens has many of the features you might expect in any super-prime home: the pool, the staff quarters, the gym and the subterranean extension, all sprawled across nearly 20,000 square feet. For that money, though, Ken Griffin does not get his own driveway, and must share one with the foreign secretary, whose official residence is next door. In 2013, the home was bought by Mike Spink, developer and designer to the ultra-wealthy, for £65.5m, who completely remodelled it. George Hammond The typical loan duration is five years, he says, meaning many loans taken out at the peak will fall due this year. Lenders are not high street banks. Even traditional private banks like Weatherbys or C Hoare & Co tend to prefer British landed wealth over the newly affluent from abroad, who have become the major acquirers in London’s super-prime market, says Harris. Typically they will use large firms with a global presence, such as Kleinwort Hambros (part of Société Générale), UBS and Credit Suisse. These firms’ international banking networks allow foreign buyers to use assets at home as collateral for a mortgage on a London purchase, saving them UK tax. “The larger the loan they can raise this way, the smaller the remittance tax bill associated with transferring money into the UK to make the purchase,” says Harris. In March, Savills sold a home on Cresswell Place in Kensington for £25m. An agent, who wished to remain anonymous, says the home was first marketed at £42.5m in 2015 and the developer turned down an offer “in the thirties” soon after. After the receivers were appointed last February, they slashed to price to £20.95m. Recommended UK property London property transactions drop to decade low Camilla Dell of prime London buying agent Black Brick recently acted for the buyer of Red Lion House, a six-bedroom converted pub in Mayfair, another repossession sale. When the bank made a further margin call to reflect the lower value in the falling market, the owner ran out of cash and defaulted, leaving the bank racing to sell the house, she says. First marketed at £25m last year, the home was sold in November for £15m: at £1,748 per sq ft this was a 20 per cent discount on the average Mayfair sale in 2018, according to LonRes. While the total number of repossessions is still small, there is growing pressure on developers to reduce prices to avoid joining the pile, meaning further sharp price cuts are likely. “Repossession is the nuclear option,” says Scarisbrick, so lenders will typically go to great lengths to avoid it. As soon as the receiver is appointed, he says, it affects the perception of value in the whole market. Bargian buys This 11-bedroom townhouse in Belgravia had its price reduced by £6m in November to £30m So where might bargain hunters with a spare £30m start their search? The day after the FT reported the story about Ken Griffin’s purchase of 3 Carlton Gardens, £6.05m was cut from the price of a seven-bedroom townhouse on Cowley Street, less than a mile away, by developer Saigol DDC. The new price of £29.95m, through the agent Rokstone, represents a drop of 17 per cent. The super-rich looking for something further out of town might consider the six-bedroom house on Canons Close, a cul-de-sac off Bishop’s Avenue near Hampstead Heath, listed for sale at £11.95m with Glentree Estates. The price represents a cut of more than £4m, or 26 per cent, of the home’s original listing price last January. The developer, Friroka Group, knocked down the old home on the site and rebuilt the current one from scratch. “The new price cuts out the negotiating room, not the value,” says Trevor Abrahmsohn of Glentree Estates, sounding, perhaps, the desperate side of optimistic. In Belgravia, an 11-bedroom townhouse in Wilton Crescent is for sale for £30m with Rokstone. This price follows a £6m cut made in November, just over a year after the home was put on the market.

True grit: will redevelopment blunt Kentish Town’s edgy appeal?

The North London area’s rough edges are slowly being smoothed out

By George Hammond

When describing Kentish Town in north-west London, estate agents like to use words such as “edgy” or “gritty”. Both would be desirable qualities in a piece of sandpaper, but not in a place where buyers might be looking for a family home — and certainly not in a place where the price of a family home frequently tops £2m.

Still, its “edginess” forms part of Kentish Town’s appeal, agents say. It’s perhaps why Taylor Swift chose to shoot part of her video for “End Game” there. The singer can be seen hanging out in Falkland Place and drinking in the upstairs bar at the Bull and Gate. She also reportedly filmed a segment in local kebab house Kentish Delight — though these scenes don’t seem to have made the final cut.

“There are some bits of [Kentish Town] that are still quite grotty,” says Camilla Dell, managing partner at buying agents Black Brick. Any buyer strolling past Kentish Delight on Kentish Town Road might be inclined to agree — agents admit the high street looks a little shabby. But move away from there — to the grid of streets north of Leighton Road or to one of the area’s highly Instagrammable multicoloured terraces — and the housing stock starts to look much smarter.

On the brightly painted Leverton Street, Chestertons is selling a two-bedroom house (in creamy yellow) for £1.1m. On Montpelier Gardens, the same agent is selling a large five-bedroom terrace for £2.7m. The area’s rough edges are slowly being smoothed out, says Gary Linton, founder of developer the Linton Group, which launched the Maple Building, a block of 57 apartments just north of Kentish Town station, in May 2016. The development is currently “about 75 per cent sold”, he says.

A chicken shop recently reopened as a sourdough pizzeria; and a subterranean public toilet reconfigured itself as a cocktail bar. “Gail’s [the bakery] is moving in where there was a tanning salon,” says Caroline Hill, chair of Kentish Town Road Action, “which I’m delighted about.”

A two-bedroom house on Leverton St, £1.1m

“It’s authentic London,” says Nina Coulter, director of residential development at Savills. “It hasn’t been over-gentrified and it hasn’t got loads of shopping centres: it’s somewhere to live.”

Not everyone agrees. In 2015, when the Mamelon Tower pub was being developed into apartments, squatters put up a banner that read: “We don’t want your yuppie flats, we are happy with our rats.”

House prices in Kentish Town have almost doubled since 2007 — up 94 per cent, according to Land Registry data compiled by Savills. Last year, the average cost of a second-hand home reached £805,000. Prices for new-builds can be much higher, as developers such as Linton have been moving in — a sure sign that an area is “up and coming”, says Dell. Aside from the Maple Building — where a three-bedroom penthouse is on the market for £2.495m, through Savills — recent arrivals include the Furlong Collection, where a four-bedroom townhouse is on the market with Foxtons for £1.5m; and Founders House, a former pub converted into one and two-bedroom apartments.

The cooling market for prime central London homes seems to have spread to Kentish Town. In 2017, the price of a square foot in the area fell 7 per cent, according to LonRes — with more than 37 per cent of homes having their price reduced before selling. As confidence in the market recedes, the number of transactions has slumped too, down 33 per cent since their peak in 2014.

Over the road from the Founder Arms development is a Grade II-listed building with a sign on it that reads: “12 new homes, one cinema space, coming soon.” Developer Uplift Property took over the premises in 2015, but it’s still not clear when it will be complete. “Soon went past a long time ago,” says Hill.

Traditional houses on Patshull Road, Kentish Town

Buying guide

  • As well as affordability, buyers are drawn to good quality local schools, including the Collège Français Bilingue de Londres
  • A number of local streets are lined with pastel-painted houses, a convention initiated on Kelly Street, which is now a conservation area
  • The area is served by underground and overground railway lines, as well as direct trains to Luton airport

What you can buy for . . .

£500,000 A two-bedroom ground floor flat

£1.5m A four-bedroom Victorian terraced house

£5m A five-bedroom duplex penthouse

Market stalls in London’s Covent Garden

Properties around the historic piazza have been upgraded but sales have slowed

By George Hammond

February 2nd 2018 – The Financial Times

Stalls and shops in Covent garden market

Prime property added market stalls in London’s Covent Garden properties around the historic piazza have been upgraded but sales have slowed shops and stalls in Covent Garden market.

At various times the home of paupers, performers, prostitutes and the pious — it started life as a monks’ vegetable patch — Covent Garden’s identity has been haggled over and traded like produce at a hawker’s stall. Its latest reinvention is at the hand of developers, insistent that this one-time “touristville” is now a smart residential district in what developers and agents have dubbed London’s “Midtown”.

Since the developer Capital & Counties (Capco) purchased the market building and nearby properties for £421m in 2006, buyers and surging residential prices have given credence to that idea. But with values across prime London tanking — down 15.9 per cent since the 2014 peak, according to Savills — vendors in this former fruit and flower market are ready to barter.

Before Capco moved in “Covent Garden was a bit seedy”, says Nina Coulter, director of residential at Savills. “Some of the retail was a bit low-end.” Since Capco’s acquisition, though, “even the quality of the street performers has gone up”.

The developer’s influence is evident all around the piazza. Restaurants — including Balthazar and the Ivy Market Grill — and retailers have been brought in. Today, Capco boasts that Covent Garden is home to the “most beauty brands per square metre” anywhere in London. The most dramatic facelift, though, has been on the local housing stock.

“Because the perception of the area has improved and it’s been gentrified, the developers have moved in,” says Coulter. Aviva Investors recently converted a former jazz club into 14 apartments at The Colyer, where CBRE is listing a three-bedroom penthouse for £3.495m. Nearby in the newly-built 38 Southampton Street, prices for a one-bedroom flat start at £975,000. This year will also see the completion of Capco’s Floral Court development. As well as 45 homes, the project will include restaurants, shops and a courtyard. “We’ve not seen anything like it in Covent Garden,” says Lisa Hollands, executive director of CBRE residential.

The effect on house prices has been significant. In 2007, the average square foot of property in the Covent Garden area would have cost you around £1,000. A decade on, that figure had risen 60 per cent, to £1,600, according to LonRes. Prices for new-builds are much higher. The three-bedroom penthouse at the Colyer, at £3.495m, costs more than £2,400 per sq ft.

There are signs, however, that the surge is petering out. Last year, prices per square foot in the postcodes spanning Covent Garden fell 1.4 per cent from 2016, according to LonRes. Properties languished on the market for an average of 170 days, the longest period of the past five years. On Macklin Street, a two-bedroom apartment in a converted warehouse is for sale at £2.3m, with Knight Frank.

Sales of new-builds have slumped. Between January and September last year, LonRes recorded just two new-build sales, compared with 18 in 2016.

Three-bedroom penthouse at The Colyer, £3.495m

“A lot of the new boutique developments which were completed when the market was still up, have had to cut prices a lot in the last few years,” says Louisa Brodie, head of search and acquisitions at estate agents Banda Property. She puts the blame on stamp duty reforms in 2014 and 2016, which first raised the tax bill on all homes priced above £937,500 and then added a 3 per cent premium on second homes.

There may be more localised reasons behind the price falls, though. Agents say that much of Covent Garden’s recent ascent was built on its relative value. “One of the reasons people were buying four or five years ago is it looked great value compared to Mayfair or Kensington,” says Camilla Dell, managing partner at buying agent Black Brick. “But now the price per square foot is the same as Kensington on new-builds.”

Buyers may be reluctant to return to Covent Garden’s resale market. “Some of the older stock looks knackered,” says Jo Eccles, managing director of SP Property. “People are used to having pools, and all they have is a tatty water feature.”

That’s unlikely to play well with wealthy European and Far Eastern buyers. Overseas buyers comprise roughly half the local population. “Domestic buyers wouldn’t have thought of it before the gentrification,” says Peter Preedy, a director at JLL. They’d go to the theatre, but would they live there? God, no.”

Even now, agents concede that the bustle of Covent Garden can dissuade clients, with many preferring more residential neighbouring postcodes. “To buy in Covent Garden you have to love Covent Garden,” says Dell. Convincing buyers to see past the street performers and tourists might need more than the flashy new “Midtown” rebrand.

King Street, Covent Garden

Buying guide:

  • Covent Garden’s piazza, the surrounding houses and St Paul’s Church, on the piazza’s south-west side, were designed by 17th-century architect Inigo Jones
  • The Royal Opera House, just off the piazza, is the third entertainment venue built on the site. The Theatre Royal, built in the 1730s, burnt down in 1808. Its successor met the same fate in 1856
  • Covent Garden is less than 15 minutes from the City of London via the Tube 

What you can buy for . . .

£1m A one-bedroom flat in a Grade-II listed building

£3m A three-bedroom penthouse apartment

£6m A seven-bedroom townhouse on Long Acre