It’s the third week of May 2021 and the property press are hyping the market to an almost hysterical level.
At the same time, my clients are seeing the same old properties available to purchase all over central London and no sign that the market is freeing up.
So what exactly is going on?
Are prices in Central London on the rise?
Is there anything new to buy?
Have we stopped worrying about the implications of Brexit?
Does it matter that the UK is so heavily in debt as a result of the covid pandemic?
So what is the real story behind the headlines?
Property press reports we have been reading over the past weeks and months are mainly covering two recent phenomena. A relatively small exodus from London and a rush to buy coastal/holiday homes in the UK.
Buyers confident that working from home is now a viable proposition for the majority of their working week have been moving out of London to get more space. These buyers have made significant lifestyle decisions that living in a larger house with a bigger garden in the home counties and beyond can be made to work in a new normal work/life balance. These buyers do not see themselves travelling into the London office on a wet Monday morning aboard a crowded commuter train. This has had the effect of pushing prices of country properties up by 15-20% in pockets of the home counties and has upset the usual patterns of supply/demand in these areas.
A second phenomenon influencing property press reporting is a rush to buy second/holiday homes along the south coast of England and the popular holiday spots of Devon and Cornwall. When travel overseas is difficult, holidays at home are your only option and the holiday lettings market in the UK is seemingly busier than ever. It’s quite easy to justify a second home purchase on the coast if you can rent the property out for a good return when you’re not using it.
Whilst the rest of the UK property market has remained relatively subdued, lockdown has at least enabled some buyers to get their finances in order. Demand has improved in many areas as buyers who have been deferring big property purchasing decisions are getting braver as the covid threat recedes.
Are prices in Central London on the rise?
It is rare that central London does not lead the way out of a prolonged period of house price stagnation such as we have seen in recent years.
The pattern of recovery has tended to start in London followed by waves heading out of town. Money from overseas has flooded the market for prime property and the market for investor buyers has offered consistent returns as house prices continued their seemingly inexorable rise. But other than a short lived Boris bounce in 2020, London prime property prices are in some cases 20% down from the peak of 2014.
So, pockets of house price inflation that we have seen in recent months have been largely created by buyers moving out of London and the rush to buy holiday homes in the UK.
Central London property right now is a market driven in the main by domestic buyers. There’s simply very few international buyers in town right now. We are not expecting to see dramatic price inflation in London until travel restrictions have eased. Prices will be stable in the meantime influenced mainly by demand outstripping supply. The good news around the UK vaccination programme has bouyed confidence in the housing market to an almost irrational extent. People are just so desperate to get on with their lives and this includes moving house to achieve more space and a bigger garden.
For the first time in a long while, we are seeing market conditions not being dictated by cash rich investors from overseas. In 2022 and beyond, once the international money returns to prime London, we would not be surprised if 2021, was viewed as a buying opportunity.
Is there anything new to buy?
Estate Agencies across London are all reporting higher activity levels over the past month/six weeks. But this has followed the quietest year they have probably had for 10 years. It’s all relative and this is rarely reported. How busy is busy?Most Estate agencies would happily admit that they have the capacity to handle many more enquiries and transactions than they are currently seeing.
No doubt, the supply of new and exciting houses to purchase in London is improving but the rate of improvement is pitifully slow. In the meantime, the competition to buy good houses that do come to the market is strong and this will be reflected in asking prices.
Have we stopped worrying about the implications of Brexit?
There is no doubt that for some sellers, the implications of Brexit have really yet to manifest themselves on the UK economy. This could negatively affect prospects for house price inflation for years to come. Whilst it’s okay to feel a little wealthier because you spent less money during lockdown, Taxation will have to rise to pay the governments covid bill. The Furlough scheme and other covid benefits were ruinously expensive and whilst government debt is cheap to finance with such low interest rates, we will have to balance the books in the coming years.
But the big question right now is will we ever see a property market operating at “usual” levels of transactions? Current punitive rates of stamp duty seem to have taken all the liquidity out of moving house. It’s just a very expensive business to buy prime property in 2021. Costs of moving house are easier to stomach during periods of rampant house price inflation. If prospects for property market growth are less certain, the expenses of moving house become more of an issue for many potential home buyers.
What are we advising our clients in May 2021?
For many of our recent posts, we have tended to reach similar conclusions. It’s a good time to be out looking if you can find the right property. But finding quality property to purchase in May 2021 is definitely job for a specialist. You have to knock on a few doors and find those sellers waiting in the wings for supply to ease up. With nothing being openly advertised to tempt reluctant sellers to contemplate a move, the market is stuck in a holding pattern.
We cannot make a rational case for house price inflation in London right now but there is no doubt that demand is outstripping current supply and so asking prices will inevitably have to increase to reflect this.
The property market is operating at something like 30% of the transaction levels you would usually expect to see in a typical springtime season. and estate agencies are desperate to list properties to meet current demand. For the time being then, it’s a better time to be a seller than a buyer. However, for most sellers there is ground to make up before they are able to achieve prices last seen in 2014.
Recent Stamp duty concessions have fuelled short term property market boom periods in recent times but it may take a radical rethinking of property taxation to get the market moving in earnest in the near future.
