April 2008

The credit crunch bites – but London remains resilient

Recent observers of the UK press could be forgiven for thinking that the UK property market had all but self-destructed over the past few months. Headlines forecasting the return of negative equity and mass home repossessions have been matched in their hyperbole by predictions of a full scale melt-down in the equity markets. The reality is rather less dramatic. A housing market slowdown was certainly in evidence in late 2007 and early 2008, the result of tighter lending restrictions by mortgage providers in response to the sub-prime crisis across the Atlantic, worsening sentiment over the global economy and a loss of confidence in the banking sector. However, the consensus amongst industry experts is that whilst the current environment presents challenges for the residential housing market, reports of its death, especially in the prime central London sector, have been greatly exaggerated.

So just how tough are current conditions? The winter months were decidedly chilly in the mainstream UK market where, by February, house prices had fallen for the fourth month in a row. The Nationwide Building Society’s announcement last month that annual UK house price growth had fallen to just 2.7% was matched by Bank of England data showing that mortgage approvals remained at historically low levels in January, an indication of lower demand from potential homebuyers. February’s survey from the Royal Institute of Chartered Surveyors was particularly gloomy, with an acceleration in the number of surveyors reporting falling rather than rising prices and a drop in the number of new buyer enquiries.

The prime Central London sector also paused for breath, with 2007’s stellar 16.3% annual price growth hiding a slowdown in the final quarter of the year. The new year, however, saw the sector defy expectations to deliver a three-monthly growth rate of 2.8% by the end of February. Knight Frank’s Head of Residential Research, Liam Bailey, pointed out that although this market has not been immune to unease in the financial world it has continued to show resilience, commenting: “It is clear that city money is still being invested in prime Central London property, though perhaps not with the same enthusiasm that followed last year’s bonus round”. Furthermore, the ‘two-tier’ market that has distinguished the very top end properties from the mainstream remained solidly in place. The fourth quarter of last year saw properties with price tags of more than £5 million rise by 2.4%, driven largely by international buyers with very different purchasing patterns to those from the City.

Once again, geographical location remained key over the winter and evidence has continued to show that the London property sector beats to a different drum that the rest of the UK. February’s FT House Prices Index confirmed that against an overall slowing trend across the country, London house prices remained well out of line, being substantially higher and rising faster than those of any other region. The FT Index recorded a wide variation within London itself, with prime central areas such as Kensington and Chelsea showing an impressive 27.3% annualised growth rate in February, compared with significantly lower levels in less desirable locations.

Outside residential sales, the lettings market has remained healthy with strong rises in rents, constrained supply and healthy tenant demand for private rented property. Although rental yields on the average property are low, buy-to-let landlords continue to demonstrate their long term ownership aspirations and there has been little sign of any cutback in borrowing. The Council of Mortgage Lenders (CML) said in February that new lending had slowed in the fourth quarter of last year but was still significantly higher than in the same quarter of 2006. The CML’s findings that buy-to-let investors appear to be less affected by tighter credit conditions than people buying a property to live in, has confounded fears that landlords with highly geared investments could pull out of the market en masse. Karen Goodin, Buying Consultant and Head of Black Brick Rental Search, commented “Buy to let investors are showing their commitment to the investment market by remaining true to their primary objective of long term capital growth. This is despite tightening credit conditions in the wider market and poor newsflow across the residential sector.”

So after a turbulent year, what does 2008 hold? Most commentators agree that the boom is over, with slower growth an evitable feature of the coming year. In contrast to the headline writers, however, very few industry experts will be hiding in their cellars waiting for a crash. Savills has forecast 3% average house price growth in the UK in 2008, but expects a healthier 5% growth in both prime and mainstream central London, citing the capital’s continued dominance as a global financial centre and its attraction to international buyers as a key support. Savills also draws attention to the benign economic background compared with the last housing market ‘crash’ in 1989, a period when interest rates had risen to an extraordinarily high level from a low base. Today, the consensus points to a loosening of monetary policy from a relatively low level. Knight Frank casts a more conservative eye over prime Central London, predicting 3% growth in the coming year due to the as yet unknown impact of the credit crunch. Nonetheless, Liam Bailey points out that “there are one or two encouraging signs for prime properties in central London”, not least the degree of resolve which the prime London hotspots of Chelsea and Mayfair demonstrated in February.

With so many uncertainties facing investors in the coming months, it is clear that selectively will be the watchword for potential investors. Kate Bond, Buying Consultant at Black Brick Property Solutions comments:

“Despite the wider slowdown, the prime sector continues to display features of a healthy market. The best properties fly off the shelf and those in the most desirable locations continue to command high prices and attract sealed bids. We are still seeing extraordinary levels of growth in central London hotspots such as Kensington and Chelsea, and Mayfair. However a notable knock-on effect of the credit crunch is the increasing number of properties coming onto the market. This will give buyers greater choice and a wider range of properties to sift through. Finding the right property in this environment becomes a more complex, but potentially more rewarding task. Buyers with a selective eye, who do their research, are skilled at negotiation and have a strong awareness of value will emerge with the best outcome”.

Black Brick – A rising star on the London property scene

Black Brick’s expertise in the London and South East property scene is gaining recognition across the industry and attracting the attention of the UK press into the bargain. In recent months our rising profile has won us mentions in leading broadsheets such as the Financial Times, the Daily Telegraph and the Daily Mail, where we have offered advice on buying tactics, commented on the changing demographics of the prime property world and discussed the international profile of the London market. Our rising profile reflects our success in meeting the purchasing objectives of our clients. In the past year, more than 36% of our properties have been purchased off market, giving our clients a key advantage in finding their perfect property well before it appears on estate agents’ books. And our commitment doesn’t end there. When our clients decide to make an offer, we negotiate hard on their behalf to secure them the best price we can. In 2007, we negotiated an average 7% off the purchase price of the properties we brought, providing our clients with a significant saving in a highly competitive market.

Black Brick expands its offering

We are delighted to announce that Black Brick has expanded its portfolio of property services in two critical areas; sales and negotiation.

Managed Sales Service

When it comes to selling your home or investment property, the choices that you make are crucial. So many elements of the sales process, whether it is selecting appropriate agents, assessing valuations, negotiating terms, presenting your property to its best advantage, or managing the viewing process, require you to make decisions that can have a dramatic impact on the return that you achieve. Black Brick’s Managed Sales service is now available to advise you on all aspects of your property sale. Our in depth knowledge of the industry, extensive network of contacts and proven negotiation skills will ensure that your sale reaches a successful completion at the best possible price and, most importantly, with the minimum of stress.

Negotiation only

Our second new offering is Black Brick’s Negotiation Only service. Negotiating and securing a property through to completion, whilst achieving the best possible price for the buyer, requires considerable experience, persistence and time. In today’s challenging market, this phase of the buying process will be even more important as opportunities increase for buyers to negotiate attractive discounts to the asking price. So why not call in the experts? Once you have identified a suitable property, we will be delighted to take on the entire negotiation process on your behalf, dealing with agents, solicitors and lenders on your behalf to secure you the best possible deal as well as a smooth and successful transaction.

London – still a magnet for non doms?

Non domiciled UK residents make an enormous contribution to the financial and cultural wealth of the UK, bringing highly valued skills, business interests and investment that cement London’s pre-eminence as a global financial centre. Attractions for ‘non-doms’ include the UK’s vast array of cultural activities, its stable political background, its favourable time zone and language for international business, and its benign tax regime for non domiciled residents. Despite their tax advantages, the financial contribution to the UK from this sector of the community is vast. The Treasury itself estimates that non-doms pay the UK government a staggering £4bn from income tax alone, not to mention the added contribution arising from stamp duty and capital gains tax.

It was no surprise, therefore, that proposals by the UK government earlier this year to tighten regulation on non-doms were met by a storm of protest, particularly from the City of London, which is firmly against any proposals that threaten London’s status as a magnet for wealthy migrants. Faced with a torrent of criticism from business leaders, professional bodies and politicians alike, the March 12th budget saw Chancellor Alistair Darling water down his original proposals and removed some of the points that had caused most concern. Whilst the government intends to press ahead with plans to introduce an annual £30,000 levy on foreigners who have been resident in the UK for more than seven years, a larger number of people than expected will not be required to pay and the news that the levy will not be reviewed in this parliament or the next has allayed fears that it may rise in the near future. The government also backed away from its intention to tax income from overseas trusts relating to UK assets that are not remitted through the UK, and scrapped plans to force non-doms to disclose information about assets held within trusts as long as they have declared any taxable income or gains from them.

So will this move have any effect on London’s thriving international property market? Camilla Dell, partner at Black Brick, does not believe the impact of the changes should be overstated: “Although the £30,000 levy may still prove an incentive for some non-domiciles to relocate out of the UK, particularly those with few commitments here, the softer stance taken by the Chancellor in March’s budget will be greeted with some relief. It is important to recognise that the budget had some key concessions to the original plans and that the UK continues to offer a relatively benign taxation regime for non-doms.”

Crucially, London has some unique advantages that can’t be eroded by a more hostile taxation regime. Whilst the capital may see increased competition in the coming decade from fast developing financial centres such as Shanghai and Dubai, wealthy individuals will always view London as an attractive base thanks to its stable political system and transparent legal and property rights. And given the strong growth in the world’s wealthy population from industrialising economies such as China and India, not to mention those benefiting from the commodity boom in the Middle East and Africa, the experts at Knight Frank see plenty of reasons to remain upbeat. “Even a smaller share of a much larger world wealth pie would still support London’s stellar property market” they comment, pointing out that “the fun stuff” – London’s unrivalled culture and quality of life – will remain an irreplaceable draw for the international jet set.