London Housing: Price Analysis
The past decade has seen London real estate soar to price levels well beyond other cities in the country. The concerns over the plans of Brexit and its impact on the financial services sector in particular has brought a slowdown in price growth for the capital. Nationwide reports in a Savills analysis that over the past year the annual rate of price growth has declined to -0.6% from 7.1%.
It is expected that:
‘Despite a continuing low interest rate environment, further modest sentiment-driven price falls over the next 12 months are a distinct possibility.’
As home buyers in the capital stretch their budgets on what they can borrow in relation to income the number of transactions for housing has slumped. For the period of 12 months to June of this year there were 29,000 transactions which equates to 36% of the levels 10 years ago. The amount of stamp duty has also become a negative factor effecting buyers equity.
The average stamp duty in London for the 2016/17 tax year imposed by HM Revenue and Customs (HRMC) is £25,703 which is 3.1x the average for all of Britain with a range of £155,263 in the neighbourhoods of Kensington and Chelsea to as low as £6,186 for the Barking and Dagenham locations.
The average deposit required for a a first time home buyer in London for an average mortgage of £268,747 is at £99,753 which exceeds the UK average by 3.9x leading to a -13% decline for buyer transaction over the past three years.
Average income for a mortgage in London is at £91,329 a 66% above the average UK mortgage leading to a decline by -24% in home transactions over the past there years.
As a result of the London cost of housing middle class home buyers have now had to expand their range to find affordable homes to over 33 boroughs over the past ten years.
Katy Warrick, Head of London Research for Savills states:
‘Of the 600 wards or neighbourhoods of London for which we have reliable house-price data, only 28 now have an average house price of less than £300,000. An MP on a salary of £75,000 would only be able to buy the average-priced property in 34% of London if they had a 20% deposit and borrowing 4.5 times their income.’
‘The capacity for further house price growth in London is limited, with mortgage regulation doing exactly what it was intended to do. It is holding back borrowers from taking on excessive levels of debt in an attempt to chase the market.’
It is expected that continued mortgage regulation will slow the growth of future housing prices for London especially if interest rates begin to rise.
The expectation is that housing prices will be influenced by any future growth in household earnings.
More Outside Money
One factor that could help stabilise or perhaps increase prices could be the continued flow of international funds from foreign investors.
The Evening Standard (ES) reports property agents are seeing demand for London’s West End and city buildings from Asia and Middle East and private investors from China.
Cushman and Wakefield have reported that year-to-date sales data for the City and West End office and retail property has reached £16.37 billion.
Fergus Keane of Cushman and Wakefild says with pending sales agreements due for completion means for 2017: ‘...which means full-year sales will comfortably surpass the total £16.96 billion spent in 2016.’
‘Whilst the recent budget changes to commercial real estate capital gains tax have been unwelcomed by investors, in reality it does bring the UK in line with the majority of other jurisdictions, and it is expected that London’s appeal will outweigh these concerns in 2018.’
One recent transaction was the purchase of a retail property on Bond Street for £140 million by the Maramotti family of Italy with the fashion label Max Mara.
Brian Bickell of Shaftesbury a West End landlord told ES:
‘...demand is holding up “particularly for smaller buildings and those close to Crossrail. They offer security and long term growth prospects and are unlikely to be affected by Brexit worries.”
Gregor Wallace, of property investment group Coldwell Banker Commercial when interviewed by ES said:
“Worries of political stability overseas mean that London is still seen as a safe place to diversify if you are from places like the Gulf states.”
Also CBRE’s Stephen Pearson said:
“As we enter the final month of 2017, there is evidence that the level of investor demand focussed on London’s commercial real estate market remains high.”