London is experiencing a new two-speed market: the top end of the London residential property market has slowed; however, the majority of the city is seeing a rise in values. The traditional top quarter accounts for two thirds of Greater London’s postcode districts experiencing price falls with Kensington seeing prices fall by 11.8%, 10% decline for Notting Hill, and 10% for Hampstead. Interestingly, if the prime central London postcodes are excluded, the remaining three quarters of the capital saw a 2% rise over the same period, or annualised house price growth of 8.2% for the overwhelming majority of London’s neighbourhoods.
Out of a total 272 postcode districts in the capital, 47 saw local drops in average property values. However, 32 of these districts fall within London’s traditional prime top quarter of the property market. Within the top quarter of London’s property market, a given postcode has a roughly 50:50 chance of hosting falling house prices whereas for the rest of the capital a given postal district has a 93% probability of price rises.
New London Mayor: Sadiq Khan
Earlier this month saw the election of Sadiq Khan as our new London Mayor. Like with any new mayoral election, comes new policies where housing is often at focal point. Property industry figures state that he has a history of blocking new property developments which don’t provide high levels of affordable and social housing. Last week, Mr Khan stated his target is for 50% of all new homes to be genuinely affordable (up from the previous 25%).
In 2013, 15% of new homes in London were sold to foreign buyers, according to research by the British Property Federation. City hall officials have calculated that last year the lowest number of affordable homes was built in London since records began in 1991 – just 4,880. Khan said he wanted to build 50,000 of all types of housing a year. Leading London developers Berkeley Homes said that if authorities demanded 30% affordable housing, developers would respond by lowering land values to accommodate the lower profitability.
EU Referendum – to leave or not to leave?
The latest survey of estate agents by the Royal Institution of Chartered Surveyors suggests that the mood has altered due to the forthcoming EU vote.George Osborne warned last Friday that in the case of a vote to leave the EU, values would take a hit of 10%-18% compared with values expected if the UK stays. However, it is arguable that if sterling was to fall by 20% after a Brexit, then property prices therefore become 20% cheaper, creating upward demand. European buyers concerned by the possibility of the EU breaking up may well also look to the UK as a safe haven.
The government has said that a Brexit would likely lead to an interest rate rise, making mortgages more expensive. In contrast, ratings agency Moody’s, has said that a Brexit vote would be good news for first-time buyers, particularly in London, as they would “benefit from lower competition as house price and rental inflation would slow down if immigration is curbed.”
Many builders have put planned launches on the back burner until after the vote, however developer Oakmayne is confident in a ‘remain’ outcome of the referendum, going for a novel approach for its sale of flats at Two Fifty One Southwark Bridge Road, a new Zone 1 skyscraper between Borough and Elephant & Castle due for completion in 2018. Oakmayne will give buyers the right to withdraw and a full refund of their reservation fee if they don’t like the result of the EU referendum. Exchanging contracts will not be required until after the referendum, leaving buyers free to make a decision about whether to proceed.
Another topical change in the London property market worth noting is the way in which buyers are now structuring their property purchases after the Financial Conduct Authority has cracked down following the data leak from Mossack Fonseca a month ago. Buyers are now moving away from off-shore jurisdictions like Panama, and to jurisdictions such as Jersey or Guernsey, closer to the UK. The structure has changed in that only three layers can be used. We don’t envisage this will present any major ongoing concern when buying property in London.
This time next month we will know whether Britain will remain in the EU. If the UK chooses to remain, then this will almost certainly be good news for the London property market and the City of London. If we leave, then we could probably expect years of negotiations and drawing up new trade agreements, but may many take advantage of a weak sterling. We believe that the remain campaign is likely to win, with many undecided votes, it is plausible voters will stick to what they know and vote to remain.
Although many buyers prefer to wait until after the referendum, we have recently transacted on two apartments for a client who has been able to take advantage of the weak sterling as a result.