The property market has been described as anything from stagnant, subdued and stalling to challenging and crashing. But what, exactly, is influencing property prices in London and the South East? Reported asking prices vary from source to source, but there’s a common theme – they are falling. However, as Brexit continues to dominate the news, is that the only influencing factor?
Throughout the year, the uncertainty surrounding Brexit negotiations has hit buyer confidence. International buyers, traditionally attracted by the London property market, are also being deterred. Research collated by the Royal Institution of Chartered Surveyors (RICS) reports:
- Buyer numbers in decline
- Prices continuing to fall
- Sales taking longer than ever to complete at 19 weeks
The average price of a home in the capital fell by 0.7% to £468,544 in the third quarter of 2018, compared to the same period in 2017, according to research from Nationwide. This followed a 1.9% drop in the second quarter, but the capital remains the most expensive market in the UK, by some margin. The national average stands at £214,922.
In the prime property index for property worth £10 million plus, Coutts report that in quarter three prices are down 2.1% on the previous year, and more than half of properties on sale had their price marked down by surveyors. Describing the market as “still showing signs of weakness”, prime prices are now a significant 14.7% lower than their peak in 2014.
London reported the steepest fall in house prices in the research, but the trend has spread from the capital, with the recent research stating that “the already negative readings for the South East and East Anglia deteriorated a little further”.
The Nationwide and Coutts statistics both record actual sales where there is a mortgage involved and so are assumed to be a reliable barometer. Our own anecdotal experience is that headline prices for the high to super-high end of the market have been tumbling further than suggested by this research.
Some clients have reported that they know of examples of falls in property value in excess of 35% from their 2016/17 levels. That, coupled with the fact that people are just not putting homes on the market now, gives the impression that the London and South East market has gone stale.
Super prime real estate is suffering following some very understandable interventions with crackdowns on money laundering (and the well-publicised recent enforcement of Unexplained Wealth Orders) and political sanctions being put in place against certain nationalities. Some oligarchs may feel that London is losing its sheen, whilst Brexit uncertainty hangs over the rest of us.
In the prime real estate space, anyone with a passing interest in property websites such as Rightmove will have noticed the death of new properties coming on to the market, and high-end luxury apartment developments predominating. Many of these properties have been desperately marketed since 2017.
RICS surveyor Anthony Webb, from estate agent Trenchard Arlidge in Cobham, explained “Brexit uncertainties are compounding excessive Stamp Duty and government interference in the property market. Misjudging and misunderstanding the market have damaged market conditions despite expert advice.”
So, what interference, and what might the impact be?
Interest rates and Stamp Duty
As broader economic conditions evolve, interest rates are likely to change. But whilst borrowing remains affordable, for many, the pressure on household budgets in the capital is likely to cause a modest drag in mid-market activity.
With Bank of England rates remaining at 0.75% since August, only the second increase since the financial crash in 2008, the Nationwide report states that the vast majority of mortgage holders are on fixed-rate deals and would remain unaffected by an immediate change.
Meanwhile, the additional 3% Stamp Duty surcharge on second homes will certainly have affected buyer appetite, especially in the £1.5 million plus market, where the existing 12% Stamp Duty rate increases to 15%.
Interestingly, Westminster City Council has proposed a ban on new ‘supersize’ properties. The council, including Mayfair, Knightsbridge and Belgravia, is going to restrict new homes larger than 150 square meters to help free up space for affordable homes for Londoners.
The ban is part of Westminster’s 2019-40 development plan delivered in November. It also includes a commitment to build more than 10,000 affordable units by 2040.
Councillor Richard Beddoe, who oversees planning in Westminster, said “We want Westminster to be home to a thriving, mixed community, not empty super prime properties. That’s why we will be restricting the size of new luxury apartments and introducing a new extra bedroom policy to make it easier for families to extend their homes, so they have enough space to stay living in Westminster and are not forced to move out.
“The council said 150 square metres was twice the size of the average private residence in the borough and would ‘still enable generously sized homes to be developed, but balances that against the other, more strategic housing need of the city’.”
We should note the proposals are subject to consultation but confidently describe the wider development intentions as a plan for people, homes and for economic growth. It remains to be seen if they go ahead.
There are macro and micro-environmental influences on the London and South East property market. Frankly, the future remains uncertain. What you are able to plan for, and take advantage of, is expert wealth planning to help mitigate any further negative movement in the property market. From tailored investments to insurance solutions, mortgage services to tax and estate planning, our highly qualified, private client teams are here to help you achieve your financial objectives