November has been a much anticipated month, given influential events taking place such as the US election and the Autumn Statement, which has been the first budget announcement since the UK voted to leave the European Union. This month we will review the key outcomes and possible consequences of these two major events, as well as other important issues and news surrounding the London property market.
The US Election
It turns out that Brexit was not the only surprise 2016 had up its sleeve. Donald Trump’s surprise victory to become the 45th President of the United States, defied the pollsters and the media in one fell swoop. But what does this mean for the UK economy and the UK property market?
The UK now finds itself having to simultaneously renegotiate its position in the World, as well as its global trade agreements in the wake of the Brexit vote. Following the election, markets immediately stabilised and the Dollar continues to perform well against the Euro and the British Pound. There has been speculation that the UK’s trading position may potentially benefit from the Trump Presidency, as Barack Obama had previously suggested that the UK would go to the back of the queue. However, Trump’s seemingly isolationist stance may mean this doesn’t materialise and it remains to be seen how his potentially more controversial policy decisions will play out within a socially and politically divided US.
Despite the Canadian immigration website crashing due to a surge of enquiries from over the border, following the election, it is too soon to presume that this was anything but a knee jerk reaction. Initial speculations that the US election result would spark increased investment in London are yet to be substantiated.
The Autumn Statement
The UK property market waited with bated breath as Phillip Hammond announced the UK’s first Autumn Statement since the referendum. His predecessor George Osborne had repeatedly delivered body blows to the UK property market and many feared more of the same. In reality, there were winners and losers, depending upon whether you are an investor or hoping to buy for the first time. Hopes amongst many developers and investors that the 3% SDLT hike, implemented by the previous chancellor George Osborne, would be reversed, weren’t realised.
The major news for the London Property Market involved £3.15b being set aside for new homes in the capital and a ban on lettings agent fees (the fees lettings agents charge for administration and referencing). Although this has been designed to shift the costs from tenants over to the landlord, in reality many fear that the costs will inevitably be passed on to tenants in the form of higher rents. Conversely, landlords are concerned that if tenants are not paying the fees, there is greater potential for them to play the field, in terms of making multiple offers on several properties. Subsequently, measuring how committed they are to a given property will become more difficult.
Buying over the Christmas period
Christmas is traditionally a great time to buy. Sellers are generally motivated, as it is an unconventional time of year to sell and there is generally a pressing reason not to wait until the New Year. Agents are typically quieter as buyers are sparse; Christmas shopping, parties, shorter evenings and colder weather all playing their part.
Market performance and forecasts
Clearly none of us own a crystal ball and in uncertain times, it is challenging to make accurate predications as to how the London property market will perform over the coming years. Much of this hinges on the outcome of our negotiations with the EU and particularly in London, as to whether any restrictions will be imposed on financial institutions. However, given the wave of political uncertainty and social divide that appears to be spreading across Europe, these financial institutions potentially have limited options when considering relocation. Subsequently, many believe that an attractive exchange rate, a neutral time zone and political stability will continue to attract investment and London will continue to be a financial powerhouse.
Currently certain geographical areas within London are performing better than others. This is largely affected by the number of new build properties available, which in some areas has led to an oversupply. In addition to geographical areas, the lower end of the market, typically below the £1m mark, remains buoyant where SLDT liabilities are not so hefty and both buyers and sellers are generally more motivated and mobile.
The consensus amongst leading forecasters seems to suggest that we can expect decent levels of capital appreciation over the next 5 years. Certain areas are expected to outperform others, quite dramatically in some cases, with Prime Central London expected to experience growth of 21% by 2021, according to Savills’s recent forecasts. In the short term however, no growth is anticipated in 2017.
It’s clearly important to put the current drop in transactions and lack of growth within the London property market into context. Over the last 5 years, there have been huge surges of growth, prior to two stamp duty hikes in as many years and various aggressive policy change that has sought to stifle the buy to let market. This has all been capped off with Brexit, whereby some buyers in the immediate aftermath of the vote, seized the opportunity to turn the screw on committed vendors by reducing their offers. In reality, most sellers have simply decided to sit it out and wait until the dust settles.
We have seen the ripple effect in recent years from the heartbeat that is Prime Central London, emanating out into Greater London and further into the Home Counties. Many areas outside Prime Central London have benefited from improved infrastructure (such as Crossrail) and have subsequently experienced dramatic growth over recent years. When this price growth reaches the point where it is consistently and overwhelmingly outstripping that of PCL, buyers tend to return to buy more centrally once again, as they feel that it represents better value for money, we see this cycle repeating itself time and time again.