3rd July 2024
12mins
One change which both main parties could agree upon in the run up to the election has been leasehold reform, and this can only be a positive thing for buyers seeking central London apartments but are anxious about expanding ground rents and shrinking lease length.
“The leasehold system in the UK is a surprise, and a concern, to overseas buyers who can’t understand why they have to pay so much money and still not be the outright owner of a property,” said Camilla Dell, managing partner of Black Brick. “Updating the system should provide them with a greater sense of certainty which can only benefit prime central London’s flat market.”
The Leasehold and Freehold Reform Act 2024 received Royal Assent during the last parliament meaning that in future short leases – defined as 80 years or less – should become less expensive to renew.
Any new lease extension will be for a 990 year term (rather than the current 125 year maximum).
Labour has, in addition, stated an ambition to cap ground rents at £250 each year, although how, when and if this happens remains to be seen.
And now for the bad news. Labour has also pledged to impose an extra one per cent Stamp Duty surcharge on overseas buyers. This will mean foreign buyers paying an extra three per cent when they buy a main home, and an additional six per cent on a second home. To put this into context, currently an overseas buyer purchasing a second home for £2 million pays stamp duty equivalent to 12.6% (£251,250). Under Labours plans the rate would increase to 13.6% (£272,000) an increase of £20,750.
Historically increases in Stamp Duty have resulted in price falls – and often at a level higher than the percentage duty increase.
Dell is sanguine about the prospect of higher taxes in super prime locations where buyers can, quite simply, afford it “I am not sure it will make much difference,” she said. “It could have been a lot worse – Canada has banned foreign ownership of housing until at least 2027.
“In my view, Stamp Duty is too high for everyone, but I don’t think an extra 1% is suddenly going to turn off the tap of overseas buyers wanting to buy in London.”
However, there could be an impact in more marginal areas – places like Earl’s Court and Nine Elms, where there are plenty of premium new build apartments on offer.
A bigger concern for Dell is the possible impact of the forthcoming American election. In November, the great Trump/Biden face off will be resolved and the ramifications could be felt globally. “If Trump wins, the world becomes less stable,” said Dell.
The latest market report by house price analyst LonRes revealed a startling statistic. Almost half (48%) of homes sold in prime London so far this year have had a price cut, either pre-sale or during the negotiation process.
But Black Brick’s experience is that only overpriced or blighted properties are having their asking prices trimmed. Best in class properties have no such difficulties.
“We are facing a lot of competition for these properties with the best ones regularly going to best and final offers,” said Dell. “Demand outstrips supply. We’ve seen buyers competing across all price points, from houses on the best addresses in Kensington and Notting Hill at £20m, to lateral apartments in Mayfair at £10m and the family house market in Fulham up to £2m. This is not unexpected. People come to buying agents because they want something special. They are really discerning buyers and we often have to compete aggressively for the best of the best.”
This is not to say that there are no deals to be done in prime central London.
“Knightsbridge is one place where there has been quite a bit of price softening over the last 12 months,” said Dell.
In January, Black Brick negotiated the purchase of a family home on Hans Place.
Originally listed for an ambitious £13.5m, we watched and waited and were eventually able to secure the seven bedroom property for a fraction over £10m, or £2,385 per square foot.
For an election which has had such a strong emphasis on housing issues, there is little about plans for new housebuilding and assistance for first time buyers that will impact London’s prime market.
Perhaps the most significant impact on the capital will come from left field, in the form of Labour’s plans to impose VAT on private school fees while removing business rates relief for independent schools from 2025. Several independent schools have already warned they face closure as a result, while many high performing state schools are already wildly oversubscribed.
And an increase in school fees, coupled with the current high cost of living, will force some parents into very difficult decisions, and will only heighten the already strong correlation between house prices and high performing state schools.
According to estate agent Hamptons, homes within the catchment area of an outstanding state school are not only some 33% more expensive than those judged “unsatisfactory” by Ofsted, the schools’ watchdog, but have also outperformed. House prices around outstanding schools are up 67% since 2008, compared to a 59% increase near unsatisfactory schools.
“This is going to put a lot more pressure on the state sector,” predicted Dell. “There will be particular hotspots where, in particular, primary education is very good and prices there are going to go up.”
These hotspots could include popular family suburbs like Battersea (Belleville Primary), Gospel Oak (Gospel Oak Primary School), Dulwich (Dulwich Hamlet Junior School and Dulwich Village infants’ school) and Barnes (Barnes Primary School).
“We could easily see a situation where any saving parents make by not paying school fees, is cancelled out by the extra cost of buying a property close to one of these sought after schools and pushing up house prices,” said Dell.
Dell likens the policy to the previous Government’s ill-fated decision to stop allowing landlords to write off their mortgage interest payments against tax. This, it hoped, would encourage them to sell up, bringing more homes onto the market for first time buyers. Landlords did indeed sell up, sparking exponential growth in rental prices (up 10% in London in the last year, according to the Office of National Statistics).
“It is the law of unintended consequences,” said Dell. “I don’t think they have really thought it through.”
Long gone are the days when London taxi drivers would refuse fares taking them south of the River Thames. But a lingering snobbery remains amongst some buyers for whom the right postcode (ideally starting SW1) is of paramount importance.
However, those buyers who want a swanky address and a new build flat with all the bells and whistles, may find themselves out of luck.
A recent report by Knight Frank found that appetite for box fresh London apartments is strong – the number of offers made on such properties are up 9% year on year. But the number of new homes being built is down 20% in the same period, with a straitened building pipeline ahead.
The result? Knight Frank says many prime buyers are venturing south of the river to find a home, looking around the South Bank and Blackfriars, where high spec developer Native Land is currently leading a 1.4 million square foot redevelopment project featuring a new Mandarin Oriental hotel and residences.
“Some clients will just rule these areas out,” said Dell. “But there are definitely some who want a luxury new build and will see that they can get better value if they go out of prime central London.
“The redevelopment of Battersea Power Station is a good example of how an area can change and become more desirable.”
One recent Black Brick client was looking for a house in south west London but changed her mind when she saw what the redevelopment of Battersea Power Station had to offer. The redevelopment of the Grade II listed landmark has been an award-winning triumph and we were able to help our client buy a spectacular three bedroom duplex for £5.5m, or just over £2,200 per square foot.
A rare piece of London-related good news in the latest Rightmove property price index.
Nationwide, asking prices are stagnant, but the north London borough of Camden has seen annual growth of 9.7%, hitting an average £1.1m.
Camden is a collection of urban villages, some famous (Hampstead), some below-the-radar (Gospel Oak), but what they mostly have in common is great schools, plentiful open space, thriving high streets and good quality period housing.
Dell believes that Camden’s strength is down to these attributes plus its relative value for money in price-conscious times. The average asking price in Westminster is more than £1.5m, while Kensington comes in at almost £1.7m.
“In South Hampstead, for example, you can buy a good family house with a garden on a nice street for £3.5m,” she said. “In West Hampstead you could buy a family home for less than £2m.”
Black Brick has recently completed a deal to buy a first home for a young couple with a new baby.
Although demand in the area is currently strong, we found them a three bedroom, 2,000-plus square foot house in Dornfell Street, close to the shops and restaurants of Mill Lane, West Hampstead, for £1.65m (or £799 per square foot). The house is also close to their chosen nursery school.
We were first through the door of the property when it went on sale and we were able to manage the whole process, from being instructed to exchanging contracts, in just 12 weeks.
Analysis by the Nationwide Building Society reveals that the property category which has performed most strongly over the past five years is the large, detached, country home.
Partly fuelled by the post-pandemic race for space, detached houses in rural areas have seen prices increase by an average 32%, found the mortgage lender, with parts of Devon (North Devon and the South Hams) seeing particularly strong growth.
During the same period, city apartments have seen prices increase by a modest 6%.
Rupert Stephenson of Black Brick’s Country & Coast Department, said that the West Country had struggled with a lack of quality family homes for relocators during the height of the pandemic, but this drought is now easing.
“There are some boomerang buyers who have realised that the country is not what they wanted – they can’t just walk to a nice little coffee shop in most places, and you have got to drive everywhere. They are now selling up and returning to the city.
“What we have also seen recently is a lot of older people, in their 60s and 70s, who sat tight during the pandemic but have decided that now is the right time to sell.
“They have just come through a long, hard, wet winter and they are now suddenly coming to the market. Many of them are choosing to sell off-market.
“These are well-heeled people who could afford to stay in these houses, despite the high bills, but they don’t want to rattle around anymore.
“Some of them are worried about a Labour government and quite what that might mean for property tax. They would prefer to liquidate their assets now.”
Dell is well aware that the owners of top-drawer country homes tend to value privacy and often opt to sell their homes off market.
She recently acted for a boomerang buyer who had purchased a substantial and very special country estate a couple of years ago, but then started to realise that they were not in the UK frequently enough to make the investment worthwhile.
Rather than list the property, Dell simply made a few calls to key buying agents and family offices and a buyer was found. The details of the sale are, of course, secret, but the owner’s experiment in country living had a happy ending. The property sold for some 40% more than they had originally paid.
Camilla Dell joined a panel of international experts to discuss the global luxury property industry, discussing trends and challenges in the UK, Europe, the USA, Middle East and beyond. The panel’s discussion was curated by The Luxury Property Forum and the resulting webinar is essential listening for anyone with an interest in top end property around the world. For more information, click here.
Our Channel Islands-based clients were after a London bolthole and with our help they refocused their property search area to find the perfect apartment.
Initially they hoped to buy a turnkey two bedroom, two bathroom apartment in Marylebone to use for work trips to the capital, and to visit their children who are at university on the mainland.
Unfortunately Marylebone is an extremely competitive market where demand far outstrips supply, particularly in the below-£2m market.
We persuaded them to broaden their horizons by a couple of miles to take in South Kensington, a more convenient choice for Heathrow Airport and with the same villagey appeal as Marylebone.
We then found them a newly renovated flat in a building with a concierge, in a super location close to shops, cafes, and restaurants on Gloucester Road.
Other buyers were interested in the property but, by taking our advice, our clients’ offer was accepted at a price which breaks down to £1,970 per square foot.
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.
