REALISATION DAWNS IN PRIME CENTRAL LONDON....
REALISATION DAWNS IN PRIME CENTRAL LONDON....
With the market drawing to a close for the seasonal holidays, we reflect on what has been a largely frustrating year for the property market in PCL.
This time last year we saw the change from the old ‘slab’ style Stamp Duty Land Tax to a progressive rate making it cheaper for buyers below £937,500, but increasingly expensive for the higher value homes commonplace in the Capital.
SDLT is now levied at 0% on sales up to £125,000, 2% on sales from £125,001 to £250,000, 5% on the chunk between £250,001 - £925,000, 10% on the next £925,001- £1,500,000 and 12% on anything more above £1.5 million. To put this in context, a £5million home now attracts £513,750 of SDLT, compared with £350,000 (7%) under the rules prior to 4th December 2014.
At the time, it seemed that the Chancellor had used this as a clever ploy to head off Labour’s idea of a Mansion Tax on any property over £2million. This may well have helped the Conservatives win the General Election in May but, once the euphoria wore off, the grim realisation spread through property circles that it had become hideously expensive buying even what could be described as a ‘typical’ London home in PCL.
Politically, dampening down the upper end of the market is no bad thing – property values have become hugely divisive and turned London into a city of ‘haves’ and ‘have nots’, but the unintended consequence of George Osborne’s policy has fanned the flames at the lower end of the market.
While transactions in PCL are down 38% year on year, buyers in the ‘Outer Prime’ areas, such as Battersea, Shepherds Bush and suburbs on the Crossrail route such as Ealing, first time buyers are forced to compete with savvy investors aware that purchase costs there are lower and rental returns higher.
Although the Bank of England Base Rate has stayed at 0.5% since March 2009 and mortgage interest rates remain low at c.3.8% APR., it appears impossible for many young Londoners to get on the property ladder without substantial help from ‘Bank of Mum and Dad’. It is not uncommon for us to sell one and two bedroom flats for £1.5m to £2million to parents investing for future generations.
This has been a year with very little liquidity in the PCL market. Many would–be sellers who have no real pressure to sell have been holding on in the hope that the market will recover. Those who do need to sell, for reasons of death, debt, divorce or more happily an increase in family size, must accept that, unless they are ‘best in class’, their properties are probably not worth what they were a year ago.
On average, asking prices this last quarter have been reduced by 8.5% before a buyer has been found. Values of houses in the ‘upper-middle sector’ (from £5million to £10million) have been worst affected as this is where there is plenty of stock. Lateral flats remain perennially popular and supply has been scarce but, with prices edging higher to £4,000 or more per square foot for the larger homes, buyer’s appetites have lessened.
Those discretionary buyers, without a specific need to buy, have been holding off in expectation that prices could slip, but that could easily change in Spring.
The shock of a further 3% levy on second homes and buy to let investments announced in the Chancellor’s Autumn Statement on 25th November has perhaps focused the minds of buyers and any sellers already owning a second home who are trading up.
95% of our clients already own more than one property and we predict that there will be a New Year rush to beat the deadline on 1st April 2016. After that it is quite possible that we shall slip into another rather torpid period until the market accepts and absorbs these higher costs of buying.
Some landlords are no doubt wondering whether the time has come to incorporate and become a limited company – the 15% stamp duty rate on properties over £1million bought in a company name might not seem such a bad idea now. Clearly, transferring existing properties into such a vehicle will trigger an SDLT bill, but anyone seeking to build a portfolio today should certainly seek their accountant’s advice.
Although the Letting market in PCL has been busy this year we have not seen much in the way of rent increases. Tenants have had plenty choice so tenants have often driven a hard bargain, reducing gross average yields to less than 3%.
As a consequence of changes to SDLT and a reduction in tax relief on mortgage payments for higher rate tax payers, would-be landlords will be deterred and the supply of homes in the private rental sector is likely to diminish; inevitably rents are bound to rise.
It is no surprise that many PCL Agents have felt the pinch over the last twelve months. With a lower sales turnover and pressure on fee scales, the share price of most large firms with multiple offices has fallen recently. Indeed, we hear Foxtons’ lacklustre performance in 2015 has caused its share price to tumble and forced the company out of the FTSE 250 and demoted to the FTSE SmallCap on 21st December 2015.
Countrywide, the parent company of Hamptons and John D Wood amongst others has seen its share price drop from a high of 599p to 397.5p and Savills has seen a similar fall from a high of 986p to 876.5p today.
This is a time when perhaps smaller, boutique agents such as ours, perform better. Owner led, we have our finger on the pulse and are quick to react to changes in the marketplace. Our focus on customer service ensures that every client can be certain of genuine personal attention from start to finish.
Looking ahead, the PCL market should continue rising over the next five years - albeit at a modest pace of about 5% per annum.
When there is trouble abroad, London has always been thought of as a safe alternative so let’s hope that remains the case and we all enjoy a peaceful and prosperous 2016.