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Latest London Property News – September 2016

Market Overview

The last three months post referendum have been challenging in determining the status of the residential property market in Prime Central London, with transaction volumes 40% lower than this time a year ago. For UK buyers prices are lower, and overseas buyers are enjoying price falls plus a more advantageous exchange rate, spending even less. Those buying in dollars or dollar pegged currencies are paying around 30% less than that of the peak of market in 2014.

  London is arguably in the strongest buyer’s market since 2009 but it’s not likely to last long. Activity has been higher than expected especially after August, which is a traditionally quiet month. A sizeable proportion of transactions are being reported through new enquiries rather than existing searches. We are starting to experience a turn in the market with measured sensible vendors who want to trade at market value rather than previous speculative vendors, who have either withdrawn from the market or now want to sell. Areas like Mayfair are seeing good levels of activity which in turn we expect will spread to areas such as Belgravia and, Knightsbridge and into Kensington and Chelsea, and we expect to see improved transaction levels over Q4. We can expect to see improved transaction levels over Q4 with an estimated 25% more property available for sale.
Latest London Property News – September 2016

Stamp Duty versus Brexit

After three months, one would expect to be able to evaluate the impact of the EU Referendum on the London property market. According to Knight Frank’s latest London property survey, ‘the single biggest factor that curbed demand in the 18 months prior to the referendum was the increase in stamp duty in December 2014, widely seen as a political manoeuvre by the former Chancellor George Osborne ahead of a general election.Second to this, the market was further hit with the introduction of the additional rate of stamp duty of 3% on second homes including buy-to-let in April this year. Essentially vendors have had to adjust to a double hit of stamp duty hikes and Brexit compounded it. In fact, the Brexit vote has actually helped inject activity into the market with the weakened sterling. We can expect to see further activity and confidence once the pound has hit its low point. One key issue is that the government is increasingly relying on London for its stamp duty revenue of £6 billion per year. London’s contribution rose from 41.5% in to March 2015 to 44.6% to March 2016. This only accounted for 12.3% of transactions, down from 12.7%. If this is to continue we are experiencing a growing reliance on parts of London where transaction levels are shrinking at the steepest rate.
Stamp Duty versus Brexit

Homebuyers are set to enjoy mortgage rates below 1%

In an already very cheap market, interest rates on typical mortgages could fall below 1% in the coming months for three key reasons: market perception being low risk, increasing levels of competition and support from the Bank of England’s interest rate cut. Currently the market is very cheap and according to the Bank of England, a typical two-year fixed 75% loan-to-value (LTV) mortgage is costing just 1.66%. It is possible that a similar 80% LTV value loan could cost just 1.15 in the near future with costs falling below that for borrowers in a stronger position. Christian Barua of Bernstein Research comments:“The most important driver to funding costs in the UK is the Bank of England base rate and the market’s future expectations of rate rises as expressed in the yield curve and the swaps market. The BoE has cut rates post-Brexit to 25bps and has signalled their willingness to do so again as a weapon against any post-Brexit recessionary trend.” Also worth noting is the low cost of funding which represents a record low rate of interest for savers, who will receive next to nothing on their deposit accounts. Previously it was expected that banks would be unable to pass the rate cut below 0.5% to borrowers as they would still have to pay something to savers. The market is highly depressed, however, with savings interest rates gradually falling in recent years. Now, the Bank of England is offering banks funds directly at 0.25%, undermining the savings market as banks can swap loans for funding in the Term Funding Scheme (TFS). After the financial crisis, and much consolidation, many banks regardless of size are looking to grow lending, especially after the challenger banks are now offering more alternatives for customers, and therefore competitors need to grow quickly to achieve the scale required to become sustainable for the long term. It’s currently understood that banks such as RBS and HSBC have more deposits than required leading to an appetite to increase mortgage lending levels.

New Office

We are pleased to announce our office is now located at 7 New Quebec Street, London, W1H 7RH. Do drop by for coffee and a chat if you are in the area. Further details of Jaffray Estates Property Search services can be found via the website:
New Quebec Street
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