Societe Generale, the French investment bank, predicted this week that thanks to Brexit London housing prices could drop 50% especially in the most affluent areas. The research found that London home prices are 12 times average earnings with new buyers forking out 40% of their income on their mortgages. Their view at this point for London housing: ‘…we see a classic housing bubble in London and Brexit as the trigger for the correction.’
Home Rental Market
In an interview with the Evening Standard, Merilee Karr, founder of the new start-up UnderTheDoormat, said: “There are over 600,000 homes in London that sit empty for four or more weeks each year, and over 100,000 homes are empty for 10 weeks or more.’ As a result it is estimated that a total of £4.5billion could be earned if London residents rented out their homes when they are away.
“There is a huge opportunity for homeowners to make some money from their most valuable asset while they are away, and companies like UnderTheDoormat enable them to do this by taking care of everything.”
Property website Rightmove said that the total number of properties available for rent has increased by 8% compared to 2015. Additionally, there has been a 142% increase in buy-to-let loans since March as a result of the introduction of the stamp duty tax that took effect on April 1. Rightmove reported that the number of listed properties on its website had increased 22% for London compared to 2015.
While this could bring about more choices for tenants it will probably not last long. Rightmove head of lettings said in the Financial Times,
“Our own research among landlords shows that just under a third of them are concerned that stamp duty changes, plus the forthcoming tax relief changes, will potentially wipe out their profits,”
“Once tax relief changes start to be phased in from next year, new buy-to-let activity could slow further.”
The report advises property investors to research areas popular for potential tenants:
‘The top five places include Ashton- Under-Lyne, Stalybridge and Oldham in Greater Manchester where average asking rents for two bedroom properties are around £520 per month and you can buy a two bed home for around £100,000.’
Rightmove also reported in their monthly index that prices for homes in England and Wales dropped £2,647 or 0.9% in a four week period before and after the referendum with the average property price of £307,824. As for Greater London, the average price in the capital is still more than double at £635,710. London’s most central boroughs were hit the hardest, with £19,051 slashed off asking prices in Lambeth, Southwark, Hackney and Newham.
Rightmove Director and housing and market analyst , Miles Shipside comments: ’As far as the price of property coming to market is concerned, the fall of 0.9% is within the range that we have seen at this time of year since 2010. There seems to be little prospect of an increase in historically low mortgage rates in the short to medium term, with even greater certainty readily available with increasingly competitive five-year or even ten-year fixed rates.’ Additionally, ‘If you’re putting your property on the market and are keen to sell, then pitching your asking price too high would be counter-productive in the current environment. Buyer affordability is already stretched and they will be looking for extra reassurance that they’re getting the best priced home to suit their needs.’
Debbie Pennell, lettings director of Robinson-Jackson in London and Kent, was quoted by PropertyWire as saying, ’With interest rates looking to slide, the long term rewards of a buy to let are still tempting, even if the short term gains are eroding to almost nothing for many landlords. Interestingly, we have looked at the number of landlords selling their investments in recent months compared to the same period in 2015.’
Stephanie McMahon, Head of Research at Strutt & Parker in London was quoted by the Evening Standard stating: ‘The next few months will allow us to see if the weakening of the sterling has any significant impact. One of the greatest challenges at the current time remains liquidity and volume of stock.’
Obviously one of the biggest fears for the property market is the chance of an economic recession as a result of the referendum. Manufacturing and services sectors have slowed, though the U.K. exports sector has risen due to the fall of the pound sterling which is currently trading at $1.31 with the U.S. dollar.
Markit chief economist Chris Williamson told Sky News: “July saw a dramatic deterioration in the economy, with business activity slumping at the fastest rate since the height of the global financial crisis in early 2009.’ Some analysts suggest the Bank of England will have to cut interest rates from their current rate 0.5%.
A Bright Spot
But this news certainly has not stopped what is considered to be the most expensive apartment listings on the London market. A flat at the iconic Admiralty Arch between Trafalgar Square and Buckingham Palace is now being priced at £150million. It is on the market by Spanish developer Rafael Serrano who negotiated in 2012 a 250 year lease with the British government for £60million. The 12 room property is expected to be priced at almost £9000 per square foot. Along with a lifetime membership at a members only club the buyer will enjoy concierge service and valet parking. One arrangement for a buyer allows the option of converting the entire apartment into four flats. This sales price tops the earlier sale of One Hyde Park, a flat which sold for £140 million in 2014.
You will not get lonely either as a 100 room hotel is planned for Admiralty Arch along with the flats.
By Kevin Murphy: www.kevinmurphy.london