There is no doubt that every estate agent in London heaved a collective sigh of relief on 8th May after news filtered through of a Conservative victory, but what now?
After a fairly dismal market from October to May, what everyone hoped for was a rapid bounce with activity back to the normal Spring-time levels but, in reality, it has been rather disappointing. More property has certainly come to the market but most agents (at least those who are honest) are reporting a lack of new buyers, particularly at the upper end.
It appears that the increase in Stamp Duty Land Tax in the Chancellor’s Autumn Statement has yet to be absorbed and the realisation that paying vast sums of money to HMRC is a very unappealing prospect. It is easy to understand that a bill of £513,750 on a £5million pound house would encourage a seller to consider extending or digging out a basement to have that extra guest room or playroom instead of moving. But further up the scale it gets worse. On a £10million pound home, the bill is £1,113,750 - more than the majority expect to earn in a lifetime.
Those lucky enough to have bought in the 1980’s are counting their blessings and are often able to trade down to help the next generation, but how does a young aspirational family move up the ladder when the gap between every rung gets wider and wider?
Prime Central London is now so expensive to buy in that the very definition of ‘Prime’ seems to be widening and taking in areas previously considered to be anything other than ‘prime’. Who would have thought 20 years ago that Brixton and Hackney would become as trendy as they are now?
Mortgage rates may be at an all-time low but they are more difficult to obtain and will inevitably rise, buy to let investors with capital behind them are more likely to spread their purchase across several smaller, less valuable homes where yields are generally higher. However, this then prices out those at the bottom of the chain and we hear the term ‘generation rent’ with the average age of a first time buyer in London being in the mid-30’s. The ‘Help to Buy’ scheme and a reduction in SDLT below £937,500 will both assist but without higher average incomes, will the ‘Super Prime’ areas of Knightsbridge and Belgravia just become a place where only the 1% of the most affluent can afford to live?
While Crossrail, with its high speed rail links to the centre, is likely to encourage buyers to move both further West and East out to the suburbs and beyond, there is no question that more homes need to be built in Central London to serve the needs of an ever increasing population and one hopes that the income derived from this Government’s ‘Right to Buy’ scheme will be re-invested straight back into affordable homes.
So, while the market up to £5million does seem to be fairly steady and sales are being agreed, turnover is 30% down on last year (Source. LonRes), and there is currently less of an appetite for the very high value homes. This will eventually change, but with fewer buyers and more choice, it will be interesting to see just how long it takes before prices start increasing at 10% per annum again.
Clearly, no-one wants or expects prices to fall but do we really want them to continue rising when incomes are not keeping pace?