2nd March 2023
8mins
This time last year Londoners were emerging, blinking, into a brave new world of freedom from the last remaining Covid-19 restrictions.
Back then we were busy arranging catch ups with friends after months apart and dreaming of proper summer holidays, and blissfully unaware of the challenges to come.
But by the end of this month spring will officially be upon us, the clocks will have changed giving us longer, lighter evenings, and the economic headwinds that battered the housing market during autumn and winter appear to be dispersing.
Soaring price rises have been at the root of the housing market’s travails over the last year. As the consumer price index moved into double figures so the Bank of England began ramping up interest rates in order to calm the economy down.
Now investment bank Citi is forecasting that the UK’s inflation rate could drop from just over ten per cent to below two per cent by the end of this year, supporting a recovery in household living standards and an early cut in interest rates. Only a month ago the bank’s chief UK economist Benjamin Nabarro expected inflation of around five per cent in October, but falling gas prices have encouraged him to revise his opinion.
What this means is relief for homeowners and buyers who require finance and who saw the cost of mortgages soar in the aftermath of last year’s catastrophic mini budget.
“Mortgage rates are coming down really quickly now,” said Caspar Harvard-Walls, a partner at Black Brick. “They are already just over four per cent, and that is making a big difference to buyers.”
Nonetheless, the true impact of the Truss regime and the mini budget is only now starting to emerge – most house price index data comes with a time lag of five or six months.
A recent study by estate agents eXp UK found that the volume of home sales across London dropped by more than a third (35.3%) last year, compared to 2021, as anxious buyers decided to shelve their plans and stay put rather than venture into an expensive and uncertain market.
Prime central London’s property market tends to behave differently to the rest of the capital, less phased by interest rate troubles, more dependent on wealthy overseas buyers.
Housing analyst Lonres found that 2023 has – so far – been a good year for PCL. The number of sales, which had collapsed to 23% below 2019 levels in December, came back fighting in January 2023 with the number deals three per cent higher than the same month in 2019.
Prices are down a modest 1.4% year on year, and 3.3% higher than they were at the start of 2019.
“I think the reality is more complex than these figures suggest”, said Harvard-Walls. “I think that there are actually two markets going on in PCL”.
“If a property is what we like to call, “best in class”, with little or no compromises, then it will sell at a high price. People will really fight over something like a house with access to a communal garden in Notting Hill or an apartment on Mount Street in Mayfair. In the last 3 months there have been two sales in Carlos Place, arguably one of Mayfair’s best portered buildings and both have sold quickly and for top prices.”
“The price reductions are all on stock where there is something wrong – it could be a walk up or on a slightly busy road. One of the big turn offs at the moment is properties needing any work because people either don’t want to do work or they are factoring in the enormous cost of doing it and knocking that off the price.”
Another stratification in the PCL market is by price bracket. Lonres found that the top end of the market, for homes priced at £5m-plus is particularly busy with sales in January running 97% higher than in 2019. There should also be more for buyers to choose from. New instructions on properties priced at £5m-plus in January were up 167% compared to the same period in 2019.
During the pandemic Londoners simply weren’t interested in flats – the hottest ticket in town was the semi-suburban family house.
But that trend has been flipped on its head over the past year and new research from Knight Frank has found that almost three quarters of sales in PCL in the final quarter of 2022 were of flats.
The overseas buyer fuelled demand for well-located apartments has triggered outperformance in key neighbourhoods. Flat prices have jumped 5.5% in South Kensington and 4.5% in Knightsbridge over the last year, found the research.
“We are very busy with clients from the Middle East and the US,” said Camilla Dell, managing partner of Black Brick.
“These buyers are still very drawn to London and everything that the UK has to offer and feel that the timing is right given where the pound is. For a USD buyer purchasing today, they are effectively getting a 40% discount in USD terms compared to the peak of the market in 2014.”
These clients, and those from other oil rich nations, also have plenty of capital to invest thanks to record profits made during the war in Ukraine.
Interest from European clients is also surging, even though more than 7,000 finance jobs moved from London to the European Union as a result of Brexit according to analysis by consultants EY.
“There seems to be a bit of movement from Europe back to London,” said Dell. “We are looking for two pied-a-terre’s for clients that live in Switzerland but would like a base in London, and we have just been engaged by an Italian family planning to relocate to London.”
It may be London’s smallest borough but property prices in the City – once strictly a commercial zone – are rapidly approaching a symbolic milestone.
Real estate values increased by 2.1% in the City of London in December to an average sale price of £968,060 according to the Land Registry figures show – a 2.1 increase over the previous month, and up 20.8% over the last year.
Driving this outperformance in the Square Mile is the great return to work which has taken shape over the past year. Amazon is the latest major global company to order its staff back to their desks, and the number of passengers using the Tube on Mondays has hit a post-pandemic record, of 2.79 million trips, some 72% of “normal” travel levels, according to the Department for Transport.
“Buyers in the City are mainly professionals – management consultants, lawyers, bankers, accountants – who often have a main family home outside London,” said Dell. “They want a pied-a-terre to use two or three nights a week. Nobody wants to spend four hours a day commuting into London.”
In the USA the average time to buy a house, from contract to closing, is 50 days, according to ICE Mortgage Technology.
On the other side of the Atlantic things are very different, with a typical sale taking five or six months to limp over the finishing line.
This is plenty of time for things to go wrong, and is part of the reason why fall through rates are currently so high with one in three deals failing to make it to completion.
Part of the reason the UK buying process operates at such a snail’s pace is the complex, convoluted system, where work on assessing a property only properly begins once a price has been agreed by buyer and seller on a handshake.
“It was a frustration in the early 2000s and it remains a frustration now,” said Harvard-Walls. “It has just always been awful.”
His view is that the UK needs to adopt a version of the unpopular Home Information Pack system which was introduced back in 2007 but scrapped in 2010 over fears that the up front cost of putting together a pack including a home condition report was deterring vendors from putting homes onto the market.
Harvard-Walls thinks that the system should be rethought, with vendors asked to produce a scaled down set of documents including title documents, local authority searches, copies of the lease, insurance details, service charge receipts and accounts.
“Sometimes a flat goes on sale and the estate agent doesn’t even know how much the service charge is,” said Harvard-Walls. “It is absurd. And the amount of money people end up wasting on legal fees is ridiculous.”
Our client wanted a two bedroom flat with private outside space within a ten minute walk of their children’s school in south Kensington.
They had £1.25m to spend – a modest budget for this part of prime central London – and were keen to get moving as their rental tenancy was coming to an end.
We were able to find them a lovely newly refurbished flat with a pretty courtyard garden in a perfect location which was right on budget.
To make life simple for our buyer we even negotiated for the vendor to include all the furnishings in the sale. This meant our client could move in after exchange without having to wait months for beds and sofas to arrive.
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.
