Jenny Tozer, Partner and Investment Manager
For many of our clients, the family home is one of their largest assets. Jenny Tozer speaks to some of the operators in the London property market to see what is really happening.
The ability to work flexibly from home is beginning to transform the UK property market as families in particular, search for additional space, garden and local facilities. The key search criteria for country purchases are no longer access to local rail stations and city centres, but close vicinity to schools, access to fast speed broadband and community amenities (shops, pubs, fitness centres).
"If the house isn’t sold within the first 24 hours of listing, it will be within 48 hours – it is crazy around here" – so said a Strutt & Parker agent in Wiltshire last week.
But it is the increase in second home purchases which has been most striking, with a wide spread of locations from The Lake District to the Cotswolds and from Hampshire to Cornwall, said Geoff Garrett at Henry Dannell, the mortgage brokers.
The arrival of the "optional office" which people attend, but less frequently, may well transform the need to commute, the type of home space required and the nature of work people to choose to pursue. In Germany for example, 74% of office workers now go to their place of work, but only half of them for five days a week, according to the Economist.
This "hollowing out of London" is having a detrimental impact on certain market segments in the London markets. The recent RICS report (Royal Institution of Chartered Surveyors) showed that everywhere in Britain is showing house price inflation, except in London, where prices have been flat for the last two months.
However, as ever, the headline figure hides the reality. The London markets is not just one "market" but a myriad of villages and segments. Activity in the lower price bracket (less that £1m) has been strong as buyers take advantage of the stamp duty holiday announced by the Chancellor, which is due to expire in March 2021. Frustratingly, this has not helped first time buyers, who are now competing with cash buyers, at a time when credit conditions have tightened considerably.
This tax induced bounce may be short lived.
Higher deposits and tighter income multiples have been imposed by the main lenders, who are concerned about increased credit risk as the UK economy contracts at an historic rate.
For example, Nationwide announced last month that they have introduced a limit on how much a family (the Bank of Mum and Dad) can assist with a deposit. Now to get a mortgage (even with a 10% deposit), the buyer must prove that they saved 75% of that deposit themselves. There has also been a significant fall in 90% LTV mortgages. These mortgages were more common in the London market.
Geoff Garrett said that not only are mortgages becoming more difficult to access, the mortgage desks have been slow to process, with some teams initially redirected to providing COVID-19 "bounce back" business loans. However, more capacity seems to be building up again now, but rates are slightly higher as demand increases. "You need to be shop around more than before and provide a greater amount of information to process a loan".
The situation in the prime London markets (+£5m) is more nuanced. COVID-19 has accelerated a move for those who were unhappy with space and/or location which has seen a flurry of activity, said Sophie Rogerson at RFR, the specialised London based, property private office. Clients generally are looking for leafy suburbs, houses rather than flats and properties with gardens or access to communal gardens. Equally, they are looking for flexible space for home office and additional accommodation.
Having spent much of the last 10 years showing clients lateral living options (large apartments, lofts, communal spaces), Sophie feels that these are now no longer the places of choice for the prime/super prime market. This may cause problems for recent development in the Belgravia, Knightsbridge area.
Interestingly, interest in the high end of the market has been driven almost entirely by domestic buyers. International buyers are mostly absent, wary of the environment in a post Brexit world, and indeed of a possible change to taxation for foreign ownership of principal residences and additional properties.
This end of the London property markets is seeing less price inflation. Pre COVID-19 valuations were already fairly priced in London. There is some pent up demand in the £5m plus markets, but very little supply. It is a chicken and egg situation. Many potential vendors at this level do not want to sell now, knowing that a possible 2021 vaccine-lead summer rally could be around the corner.
If that is the case, then the sudden move to the country may be a passing phase. London will begin to recover. Theatres, restaurants, schools and office life as we knew it, will begin to re-open and breathe life yet again into the vibrant and resilient capital. The best time to buy London property is often when others are not….and whilst the newly arrived country folk come to terms with the patchy rural broadband in their spacious garden offices.
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