Is the pre-election property market dead?
17th April 2015
Contrary to popular belief and press reports, the property market is considerably more active than tradition would have it. The days leading up to the General Election will be vital. Estate agents are busy preparing particulars for those properties due to come to the market soon. There is already fair supply but many houses will be launched immediately after May 7th in what will prove to be a short window of opportunity.
Buyers need to be organized now and so be in the best position possible to make an offer when that elusive property does finally appear. An efficient solicitor, funds for a quick exchange of contracts (a pre-requisite for anyone wanting to avoid being gazumped), and deposit funds easily accessed are all items that require some planning.
Beating your competitors to the best properties will be the reward for those that took the trouble to be one step ahead.
Forward march for Chelsea Barracks
23rd March 2015
Eight years after the former parade ground and barracks was sold for nearly £1 billion, building work has begun after more than a year of cleaning and preparation. Everyone from Prince Charles to Lord Rogers has had their say but this controversial “super-prime” development of 13 acres hopes to have 448 homes including 123 designated as “affordable”. Phase one will see 74 appartments with price tags ranging from £2m to £50m with completion set for 2018.
Like The Bromptons development further down the Fulham Road, which was finished in the late 1990s, the surrounding area’s popularity will be key to its success. A lack of key neighbouring infrastructure can haunt any development, even in a prime area, like for example, Chelsea Harbour.
In this instance though, being so close to Sloane Square, the location is first class. Where they might struggle will be on the pricing. There is already a glut of top end prime flats and these will merely add to the supply end of the equilibrium.
Those buyers that get in early and secure the premium floors with the best aspect are likely to see a safe long term investment. Don’t expect a bun fight for the left-overs which will include any units close to Chelsea Bridge Road. Even One Hyde Park struggled to sell the less popular units.
Premium properties will always sell fast. At Hanslips we help you get to the front of the queue and so beat your competitors to secure the property you really want.
The best of both worlds
16th February 2015
Isn’t this what everyone wants? The pied-a-terre in London with a country retreat not much more than ninety minutes away? Those that bought well in London in the 1990s are in a prime position to spread their asset rich load, but many are unsure of how to achieve it. How to retain a bolt hole in town and buy the perfect country dream.
This is a growing trend but selling and buying at the same time, involving the dreaded “chain” is rarely straightforward. It requires a carefully thought out time plan, whilst executing each stage of the process in the right order. Many fear the prospect of selling without having found a home to move to. Others put the cart before the horse, thinking less of how to sell first and focusing instead on the allure of attractive properties in estate agents’ windows. Some even fall into the (optimistic) trap of making an “unproceedable offer” only to find the selling agent using that bid to lever others from better prepared competitors.
The resultant frustration is avoidable. Hanslips will help by providing a clear strategy, thereby enhancing a buyer’s prospects of managing this tricky move, whilst remaining top of the estate agent’s list of preferred buyers.
Is now the time to leave London?
14th January 2015
Hanslips predicts a price fall of up to 10% for those properties priced over £2m in central London during 2015. Some asking prices are already being radically adjusted to catch early New Year buyers. Owners of properties below the £2m level will not be immune as a “ripple down” effect takes hold. Prices outside London, and especially those commuter belt hot spots like Sevenoaks, Guildford and Reading will see notable increases of over 5%.
There are many families in the terraced housing of SW London of Fulham and Wandsworth sitting on assets of £1.5m to £2.5m. Many of these properties range from 1,200 – 2,500 sqft. with gardens rarely exceeding 40 feet in length and 20 feet in width.
Those that do take the plunge can often double the size of their home and start to think about acres rather than feet and inches. The main driver for such a move often revolves around children and the desire for more space. The dilemma for many has been the fear of committing to a sale and leaving the London property ladder whilst not being able to find a suitable home in the countryside. For others it is the problem of competing with cash buyers while still trying to sell a property in London where the market has “topped out.”
Those who are serious about selling in London this year, will need to get “ahead of the game” and make sure their home is the most attractively priced compared to their competitors. Think about exchanging with a delayed completion. Only then will you be able to compete with other buyers in the countryside. The London market has changed and probably changed for the foreseeable future.
Has the mansion tax now gone?
4th December 2014
According to Danny Alexander MP, interviewed by the BBC news, the answer is no. Not for the Liberal Democrats at any rate.
The Conservative element of the Coalition have made a pre-emptive strike in the hope that “look, we’ve hit the rich once, why do it again?” Danny Alexander, however, when asked if these latest changes to stamp duty now meant that the mansion tax would be shelved was emphatic. He said that the latest stamp duty changes were a separate subject and that Lib Dem policy remained to add two or three council tax bands. Notice the omission of the phrase “Mansion tax”…the Lib Dems merely wish to press the “refresh button” on council tax. Expect Labour to follow suit with a similar re-branding exercise.
So, a one off penalty increase if you buy, not (yet) an annual tax increase if you own a property over £2m. Nevertheless, the latest changes to stamp duty will hit the top end of the market hard. If you add into this mix the increase in tax on “non doms” and Kensington and Chelsea’s drive to forbid “mega basement extensions”, one can see that the head winds are piling up into the perfect storm. All this without even an increase in interest rates!
What is frustrating is that the penalties keep increasing for those that move. Those that sit tight and do nothing including the elderly “grannies” that Mylene Grass referred to in her interview with Ed Miliband, seem to be ok, for now. What the politicians have failed to notice that it is precisely when homeowners move that the wider economy benefits. People are more inclined to upgrade kitchens, bathrooms, change carpets and curtains when they start afresh.
The property market used to be a well oiled machine in the mid to late 1990s. Now the oil has dried up and we are in danger of a total seizure. Fewer and fewer people with expensive homes will sell, which would, on its own, normally hold prices up. But other factors are beginning to play their hand and so prices over £2m will continue to be under pressure. But don’t think for a moment that homeowners sub £2m will be immune.
Implementation of mansion tax
11th November 2014
Despite Ed Mead’s (Director at Douglas and Gordon) declaration on the BBC news that a mansion tax would be “impossible to implement”, one should cast one’s memory back to the council tax implementation in the early 1990s. Not only did this new tax cover the whole country and millions of homes, there was also an appeals procedure to sort out those homes valued on the borderline of each council tax band. This time, there will be fewer additional council tax bands which might give rise to debate, and most of the 97,000 homes valued at more than £2m will be geographically concentrated in London boroughs.
So the bureaucrats did it last time and may well see this as an opportunity to “refresh” the council tax system. The country still has a huge deficit and the mansion tax will be a politically “safe” option. What they won’t have bargained for will be the effect on the property market. Prices will fall both below as well as above the new £2m threshold as a “ripple down” effect takes hold.
Mansion tax. We will all end up paying.
8th October 2014
The proposed mansion tax is more a political football than an economic one. It’s coming in one form or another whether we like it or not. It is just a question of how not if. Any ruling government would prefer this “envy tax” to be in the form of a straight forward tax, producing revenue for central government to be spent how it likes. The problem is one of implementation. Adding two or three council bands is by far the easiest way to introduce such a tax but this means the proceeds will be dispersed out to the local authorities. Not quite what the politicians in Whitehall had in mind.
So, expect the council tax bands to alter to incorporate this new tax. Property prices will fall from top down adversely affecting prices both above and below the £2m threshold, while cuts to local authority budgets will increase to compensate central government from this loss of revenue. We will all end up paying, not just the rich.
Pension reform will exacerbate poor supply of property
Government short term policies to win votes continues to plague the property market. The “Help to Buy” scheme is no doubt a popular measure but has only fuelled the demand side of the equilibrium while little attention is being paid to increasing the supply of residential property to the market.
The latest pension reforms, allowing pensioners the freedom to spend their pot of gold early, will have two noticeable effects. First, some pensioners will release capital to buy a property for themselves, as a buy to let, or to help children get onto the property ladder. Second, many pensioners who had up till recently been under pressure to sell, will now be under less pressure. Whilst on the surface this will prove a popular measure, it will fuel price rises and ironically make it harder for those who the Government seeks to help.
Joined up thinking on this issue still seems to evade the present Government. But it’s all about winning votes between now and next May…yes?
A bubble…and can it last?
London certainly is witnessing some frenetic activity. Improved levels of supply are still being outstripped by larger levels of demand and prices respond in an ever upward direction. The “Help to Buy” scheme has improved confidence at the lower end and the Government changes to the pension pot may well see many pensioners invest their more easily accessible cash into bricks and mortar. Instead of “Help to Buy” one would prefer to see measures aimed at “Help to Sell.” If more flood risk and buy to let properties were brought into the supply side of the equilibrium, some sort of more stable market might ensue.
The country market is also seeing an increase in supply of property after the false start and wettest winter for 250 years. There are still village houses, even today, with pumps and high water levels. But April and May is traditionally the busiest two months of any country market and many sellers are taking the plunge. Pricing is more sensitive than London and properties with over ambitious asking prices are failing to sell.
Expect a calmer summer while the greedier vendors take stock of a failed sale and decide whether to lower their expectations before we get to the autumn. Prices shooting up at 15% per annum is neither sustainable nor desirable and merely stokes up longer term fragility into the London market especially. Whatever George Osborne says….there is a bubble in London, and its not healthy.
Country market on hold
No estate agent likes to turn down the prospect of a sale but the dreadful weather is forcing agents to delay the marketing of new instructions. The country market often relies on sunshine (for good photos) and a pretty garden. Neither are in evidence at the moment. So long as the agent feels they have won the trust of their potential client, then they will feel confident enough to give them the correct advice. The first few days of marketing a new home are crucial, bearing in mind the initial six or so viewings are likely to be the agent’s “best” buyers. Subsequent enthusiasm and offers from buyers will rely on the estate agent getting it right first time, as any property can become stale all too easily.
Last year there was a flurry of sales in April and May after the abnormally long winter. So expect a similar re-run this year where the “Spring market” becomes condensed in a tighter time frame. Evidence suggests that there is a backlog of prospective sellers wanting to move and perhaps 2014 will be the year they finally decide to push the button.
Word on the street…
Whilst there are some estate agents still grumbling at the lack of stock, there does appear to be an encouraging start to the new year in terms of increased supply. One agent we spoke to has a long term investor client who owns multiple properties in prime central London, and due to the changes in the tax rules, has indicated that the whole portfolio may well be cashed in.
Certainly if there is to be activity in the next 18 months it is most likely to come in the next six. Unless of course there is a panic selling spree just prior to May 2015 which seems unlikely. Many investors will move earlier than that if they want to realise their handsome returns.
2014 and onwards…
The recent surge in prices during the last quarter of 2013 (mainly in London) may tempt some sellers into moving in 2014 but will also tempt many estate agents to over value again. The result may be another gap between what sellers hope to achieve and what buyers are prepared to pay. This is nothing unusual.
As always, the key to future price trends will hinge on what happens with interest rates. Many sellers have re-mortgaged and become hooked on such low outgoings while the latest buyers, some of whom are mortgaged up to the hilt, could become casualties if rates were to jump. The latest survey of firms indicates that two fifths are likely to hire staff and this latest confidence boost may see a drop in unemployment below the 7% mark. Bearing in mind the Bank of England has now rather unwisely linked the two issues, the Bank could be under pressure to increase rates sooner than expected.
Taking the interest rate issue aside for one moment, what can we expect for 2014?
Prices in London and outside over £2m will continue to be under pressure while demand sub £2m will surge. Sooner or later sellers in London will wake up to the opportunity of selling in London and buying a far larger country property. The shrewd ones will leave enough over to retain a pied a terre in central London, further fuelling the lower end of that market.
The next six months will be busy as supply slowly improves. From the summer onwards, however, activity will slow as many sellers (especially those over £2m) decide to sit it out and wait for the outcome of the Spring General Election in 2015. The dreaded mansion tax will cast a heavy shadow.
Buyer advice? So long as you are not taking out a thumping big mortgage and target a tatty property in the best location and street you can afford, then you will have little to worry about over the long term.
Reckon you are top of the pile when that perfect property appears? Think again.
Anticipate a frenetic April and May
26th March 2013
Despite Easter being early this year, many would be sellers have postponed plans to sell. Cold and snow saps the enthusiasm of buyers and also hinders the effective marketing for the estate agents. Expect such conditions to change rapidly after the Easter break as the weather improves. Estate agents will be exceptionally busy taking on new instructions and have a window of April and May to bolster targets that may at present be below par. So what will all this mean for both seller and buyer alike? Those sellers who got in early and have already had a fair crack of the whip but have so far failed to secure a buyer, will be shunted down the conveyor belt as new “fresher” instructions appear. Switched on negotiators working on personal commission aren’t stupid. They know only too well that any property that has attracted twelve or more viewings but yielded zero offers may as well be put in the junk folder. One vendor in Margaretta Terrace in Chelsea has had his house on the market since September last year, has had over 50 viewings and zero offers. I am not sure who is wasting whose time. Buyers need to be aware of which camp these sellers fall into. Attempts should be made to target motivated sellers and those whose properties have been on the market longest are likely to be more flexible on price than those whose properties have just appeared. Obvious yes but it is astounding how many buyers fail to ask the simplest of questions. Perhaps it is just an English thing not to ask questions so not to offend. But do ask…..
25th February 2013
Ed Cumming’s article in the Telegraph last weekend quoted estate agents predicting an average 19.4% increase in prices in some of London hotspots over the next five years. Areas of interest include Victoria and Battersea Park. Figures in fact range from 25.6% in Westminster to 16.6% in Barking.
Victoria is due for an overhaul with a mixed development of offices, shops and three hundred new homes with work due to take eight years. The Battersea Power Station site is due to add a further 800 new homes and will also clean up a building that has been derelict for what seems an eternity.
Low interest rates and foreign money has fuelled the London bounce back after prices slumped 25% in 2007-2008. But neither of those factors are destined to continue for ever. Foreign money is already on the wane as the Government targets those who can afford to pay more in tax and there is bound to be a question mark over interest rates if inflation (losing our triple AAA rating and the rising cost of imports with the fall in sterling) continues to be an issue.
A simple calculation will show that even if prices do go up at the rate quoted, this works out as just under 4% per annum. Barely ahead of inflation. The latest reports in the property market cite an increase in sales which is more than welcome. If more people are finally beginning to sell then such price increases seem less likely. If London is the best that can be offered in terms of price increases, what next for the rest of the country?
But then again the figures come from the estate agents.
Green deal is the wrong deal
29th January 2013
The latest Government initiative to kick start the housing market, due to commence in October, has been poorly thought out and will do nothing to address the real underlying problems affecting the housing industry.
The plan is that you can make energy-saving improvements to your home or business without having to pay all the costs up front. A Green Deal assessor will visit your home and discuss your energy needs and provide you with a report, which will estimate how much you can save on your energy bills. You then discuss what work is right for you with a provider. Energy-saving improvements include insulation (loft or cavity wall), heating, double glazing, solar panels etc. The idea is that you repay the cost through your electricity bill. With the improvements this bill should be lower than usual. The Green Deal is fraught with problems. It’s complicated as few people understand how their utility bills presently work let alone how they might work in the future and there is no guarantee that homeowners will actually save money in the longer term. If you move early there may be a redemption penalty even though the new occupier is supposed to take over the scheme. Door to door selling and cold calling, which the Government is trying to eradicate, will be back. Elderly homeowners may fall prey to rogue builders purporting to be qualified assessors/ providers and encourage work that does not need doing. Most purchasers will want to buy a property with a clean slate and may insist that any outstanding loan arrangement with the previous owner, be paid off in full on completion. We seem incapable as a nation to wean ourselves off the “buy now pay later” addiction. The underlying problem in the housing industry is one of low supply of housing and low transactions levels and this latest scheme will do nothing to relieve either. Focus instead should be on building more homes on brown field sites, targeting empty homes, improve lending, and helping the 1.5m homeowners who are affected by flooding get insurance and so be able to move.
Market latest in London
5th September 2013
So it’s official this time. Estate agents are back to over-valuing. Anything to get that crucial instruction in a market of abnormally low supply. One well known estate agent with numerous branches in central London has already instructed each branch manager to add 20% to their valuations to beat off competition from other rival estate agents.
So the gap between what many vendors hope to achieve and what buyers will be prepared to pay will widen this autumn. Prices appearing to go up, the Help to Buy Scheme, and continued low interest rates are all contributing to a frenzy of buying sub £2m. The stamp duty hike at the £2m threshold continues to dampen enthusiasm over this level.
10th July 2013
It was fairly predictable that the spring market, condensed into effectively six weeks to early June, would be frenetic. So it proved but any prospective seller who has failed to secure a buyer will now almost certainly have to wait till September. Reports recently in the press about prices going up and confidence returning do not reveal the full story. As a general rule of thumb, properties over £2m are having to reduce their asking price to sell, while those properties under the stamp duty threshold, are attracting ever more buyers. At this cheaper end of the market, demand is outstripping supply.
The Government’s Help to Buy scheme as well as Mark Carney’s statement that interest rates will remain low for at least the next two years, have persuaded many prospective buyers sitting on the fence, to go ahead and buy. Neither of these two factors can remain in place indefinitely.
The longer term prognosis looks more uncertain. The Euro cloud remains. Eventually the supply of property will increase, and this is likely to happen in conjunction with an increase in interest rates….whenever that will be.
Prospects for 2013
2nd January 2013
Two important trends will emerge this coming year. Downsizing and the need to tap into the bank of “Mum and Dad” will continue into 2013 and well beyond. Last year Strutt and Parker revealed that a third of their transactions outside London were homeowners trading down to release cash to their offspring.
Also, the gap between the rich south and the poorer north will continue to grow. However, the gap between London and the Home Counties will begin finally to show signs of closing. With average incomes set to remain subdued, prices will either have to increase outside London or prices in London will have to drop. The latter is more likely. Two thirds of property marketed last year failed to sell and while interest rates remain at abnormal levels, the pressure to move will remain low so expect transaction levels to repeat those in 2012. This does all depend on the Eurocrisis remaining inert.
Some trends will continue to plague the market. Poor levels of mortgage lending even though rates appear to be at rock bottom. Banks will lend but will continue to cherry pick who to, while they focus on their balance sheets as their number one priority.
According to the Environment Agency 1 in 6 homes are at risk of some sort of flooding. Getting insurance to cover this risk remains a bone of contention for insurance companies and the Government so homeowners caught up in this malaise will continue to have problems selling and moving.
Easing the planning process….has the Government got it right?
Recent changes to the planning system, making it easier for homeowners to enlarge their property, should in theory create jobs and boost the construction industry. Unfortunately it will also persuade many owners to shelve any ideas of actually moving. According to Hometrack, the data property company, we now move home every 26 years whereas ten years ago we were moving home every 15 years.
Why have homeowners become increasingly resistant to moving home and why is the process of moving home so important to the wider economy?
The sheer cost of moving has dissuaded many. Agents’ fees, solicitors’ fees, stamp duty, and surveys are all calibrated to the price of the property. Prices have rocketed over the past 20 years while incomes have failed to keep pace. Some would have sold and rented while continuing the search to buy but there is more at stake now than before and for many, “being out of the market”, is too bitter a pill to swallow. Property transactions have effectively halved since 2006.
While prices were going up many buyers were prepared to stomach the hassle of red tape and associated costs. The climate is changing. For example, the recent budget raised vat on refurbishment for listed properties from zero to 20%. This will make it harder for anyone who owns a listed property to find a buyer willing to incur this cost as so many listed properties have increasingly become a labour of love.
Why should this matter? Well it does. Only when people move do those feeder industries that depend upon the property industry stand to benefit. Creating a conservatory will benefit a limited workforce for a short period and perhaps a glazing specialist. Solicitors, property agents, plumbers, electricians, surveyors, carpenters, decorators, retail companies selling carpets, stone or wood floors, curtains, blinds, washing machines, fridges, dishwashers, all play a role when people move. These companies like big jobs not little ones. A new home equals a fresh start and it is precisely at that moment when consumers will want to chuck out the old and bring in the new. Refurbishing a whole flat or house rather than a fraction of it has a huge impact for the wider economy and people will often only undertake this kind of work when they move.
The cost of moving home needs to be radically reduced, and only then we will witness a revival of the property market, one of the engines for the wider economy.
What next for the London property market?
13th September 2012
The future of the property market in London could rest with the politicians in Westminster. While the foreign love affair for investing in property in London remains largely resilient, politicians are looking more closely at the “easy targets” as a means of replenishing the empty coffers. The Evening Standard wrote on the 31st August 2012 that the Liberal Democrats will debate in their conference next month, measures to limit foreign second home ownership in London. “Simon Hughes, MP for Bermondsey and Old Southwark, wants the Mayor to be given special powers to make the capital ‘off limits’ to wealthy people who purchase properties and leave them sitting empty.” The ES continues, ” …according to research by the think tank the Smith Institute, 60% of new build homes in central London are bought by foreign investors.” Indeed, you only have to chat to a few estate agents in the prime areas like Knightsbridge and Belgravia to know that the figure is closer to 80-90%. Talks within the Labour party have added fuel to the ‘mansion tax’ fire and while some of these half cooked ideas may not become reality there is an underlying wish amongst many politicians to pick on those who can afford to pay. Nick Clegg is under pressure within the Lib Dems to be more radical and further measures added to those in the Budget in the spring could become reality before very long.
The Olympics effect
16th July 2012
The London market is bracing itself for a temporary freeze while the Olympics is in full swing. Perhaps the next four weeks could be an opportune time to pick up a bargain? Well it would if any of the vendors currently marketing their properties felt any urgency to commit to a sale. Few are under any real pressure. Forthcoming auctions might be a better bet with Allsop’s on the 18th July and Savill’s on the 24th July. There is a great deal of uncertainty as to what the future holds and many buyers will decide to pick up the baton again in September. Recent figures from the Office for National Statistics show that the population of London increased by 12% in the last 10 years so it is hardly surprising that prices, borne out of a lack of supply to meet this demand, have soared. At present prices in London are treading water while outside London prices are falling.
The big three estate agents, who effectively have a monopoly on most residential properties in excess of £3m outside the M25, namely Savills, Knight Frank and Strutt and Parker are having to slash prices at the top end of the country house market. Clatford Hall, a substantial house with 103 acres, near Marlborough in Wiltshire was on the market at £4.5m back in June 2010. Today the asking price is £3.25m. Over-valuing and tax changes in the recent budget are principally responsible for the price drop. There is evidence that some vendors are beginning to run out of patience though the majority will maintain a brave face and wait till the autumn market, where they will hope for greater interest. Such optimism could well prove misplaced and the forthcoming autumn market will entrench further as a buyer’s market.
2nd April 2012
Estate agents as well as the media still seem perplexed by prices….are they going up or going down? The budget could help to answer that question. HMG has raised the Stamp Duty Land Tax (SDLT) from 5% to 7% on residential property purchases over £2m with immediate effect, and for residential purchases by ‘certain non-natural persons’ – companies and collective ownerships/partnerships – SDLT is now 15%. From April 2013 HMG also plans to levy ‘large annual charges’ on £2m+ properties held by companies.
Peter Young, MD of JDWood believes that it will be “business as usual” and “initial soundings from our buyers, sellers and staff indicate that, despite everything, the rules of the game have not changed.” And yet by his own admission there are contradictions. “Several things are certain: if you have property contained in a company vehicle for whatever reason (and not all such arrangements are SDLT-related), this is the time to consider selling. There is a window of opportunity which, if you don’t take it now, may not come again, and by announcing a consultation on an annual levy and Capital Gains Tax to be implemented next year the government is indicating that the magnitude of taxation may increase yet further.”
Advice to anyone trying to sell needs to be carefully calibrated. Geography and expectations are critical. The market outside London still suffers from a lack of quality stock but despite this, prime properties over the £2m level were already failing to find buyers before the budget. Estate agents have been slow to advise their clients on the action they need to take. There is still a yawning gap between what most buyers are prepared to pay and what owners think they can achieve. Over-valuing by agents in both 2011 and 2012 has exacerbated the problem and could result in future price reductions being “too little too late.” Price cuts at the top end will of course have a knock on effect on the rest of the market.
Within London, many buyers have reluctantly been prepared to stomach increased taxes and costs while prices went upwards. But the climate is changing. Any market works in cycles and prime central London has depended heavily on foreign buyers. The currency differential and London as a safe haven were both incentives to buy but options elsewhere may start to look more attractive. London by any standard is expensive and it won’t take much to spark a price correction. Perhaps the budget has lit the fuse?
Estate agents may have only a limited window (April and May) in which to convince their clients to take a modest price cut and catch a buyer this year. Those that get ahead of the game will be the winners. According to a recent survey from holiday rentals company HomeAway published in March 2012, 65% of second homeowners are considering or would like to sell their property. We have for years lived with demand outstripping supply but, even without an interest rate increase, that could all be about to change.
Farm subsidies….the final curtain call
2nd March 2012
If there was ever a reason why the EU might need an excuse to abolish or water down farming subsidies, this was it. The Institute for Economic Affairs has issued a report this week which claims that the EU’s farming subsidies push up food prices and push down production. The Common Agricultural Policy’s budget stands at 55bn euros this year and is set to hit 63bn euros by 2020, and supports inefficient farms and increasing land prices, the IEA said.
Please see our previous article “Land Tax and the European subsidy” for a more in depth analysis.
Stamp Duty….an alternative?
1st February 2012
John Stevenson, Conservative MP for Carlisle, wrote on the 15th January 2012 about how we can “improve the property market without increasing tax”. He recommends shifting the stamp duty burden from the buyer to the seller. He says this would benefit first time buyers. He also says this would aid mobility in that those trading up would be taxed on the cheaper property rather than the one they are buying, and lastly it would focus on the seller who is in a better position to pay the tax.
Mr Stevenson’s ideas are interesting but are open to question. This is robbing Peter to pay Paul, merely switching one negative from one side of the equation to the other. Demographically it is just as likely there will be as many people trading down as well as up over the next 5-10 years and so if the seller should be discouraged from selling then supply will further dry up and prices will increase. This hardly helps the first time buyer and what also of those who have recently already bought and paid thousands in stamp duty only to face a second round of tax when they come to sell. There is also human psychology. Buying property is aspirational, people enjoy buying and owning a property of their own. The reverse can be said of selling. Most sales still tend to be as a result of death, divorce, or financial difficulties. A further disincentive to sell property will simply result in sustaining artificially high prices.
What is needed is a fluid market in which buyers want and are able to buy, matching or slightly exceeding those who want and are able to sell. This may appear simplistic but unless one begins from a common starting point all subsequent policies are bound to fail.
Forcing banks to lend has been on the agenda for some time while governments will be reluctant to loose vital tax revenue with a reduction in stamp duty. Equal emphasis, therefore, must be focused also on the seller, with billions locked up, but in a different way to that purported by Mr Stevenson.
First are those 5.5m homeowners who are “at risk of flooding” who might wish to move but are unable to do so. In June 2013 the present deal forcing insurers to provide cover comes to an end. There is an opportunity to look at this topic which needs a radical overhaul.
Second is the issue of empty homes. According to the Halifax this number is close to 700,000 in the UK but other sources which include flats above shops for example, say the figure is much closer to 1m. Whilst measures to force landlords to either rent out or sell the property would be welcome, geographical differences will have to be taken into account. Rows of derelict homes in Yorkshire (which has the worst record) may be harder to bring back into the market than an isolated flat in South Kensington. Nevertheless this is also an area that must be tackled with a firm brush, while not forgetting that the Coalition is keen to reduce legislation, not increase it.
Third is development on brown field sites. In England, 66,000 hectares of brownfield land (equivalent to an area the size of the West Midlands conurbation) are either vacant, derelict or available for redevelopment according to a survey conducted by the Environment Agency in 2001. While planning regulations for development on green field sites should either remain unaltered or even bolstered, we should ease those areas of red tape concerning brown field sites which are where new and more affordable homes can and ought to be built. This may also help to avoid development on flood plains.
The macroeconomic effects of helping people to move will manifest itself over time so while we can agree with Mr Stevenson’s switch of focus to the seller we should be careful lest in paying Paul, we drive Peter into refusing to sell.
Early indicators for 2012 outside London
2012 will be similar to 2011 but this time more pronounced. Last year saw reasonable levels of activity up to July only for the so called autumn market fail to live up to expectations. Buyers held back while sellers pondered and a meeting of minds between the two groups didn’t happen.
Early signs for 2012 show that this year will also be a game of two halves. Estate agents know that their effective marketing window, if they are to clear the backlog as well as give themselves time to sell the new instructions, will be from February through till May. April and May will be especially busy as gardens come into their own and these eight weeks should be enough time to sell even the most camera shy homes. So, assuming we do not have some late snow (never ideal for property particulars as it dates so easily) or the euro lurches further into crisis, or Iran decides to block the export of oil coming out of the Gulf, then we can expect a busy Spring. Thereafter, most vendors may as well find something else to focus their minds as the levels of activity will become swamped by the Jubilee, European football and the Olympics.
Midgham in Berkshire is due to see at least three £2m plus houses come to the market in the next few weeks so if that trend is reflected elsewhere, then vendors will need to be price aware if they are to sell this side of June.
Prospects for 2012
As Hanslips stated back in January 2011, when everyone was breathing a sigh of relief that the worst was behind us, it remained clear that pressure on house prices had not simply vanished into thin air. The patient had a heart attack, and the morphine administered in the form of interest rates coming down to 0.5%, gave the country an artificial high. The future prognosis rests less with the Bank of England’s ability or inability to insulate the UK from the eurozone crisis and more with the wholesale rates that banks charge each other. This rate has risen approximately 25% during 2011 and will go higher if the euro falls apart. High street lenders are beginning to respond to this pressure already and that explains why mortgage rates are beginning to go up while the base rate remains static at 0.5%. Many homeowners have spent the last three years in a false sense of security but may be in for a rude shock should rates go up. If they do…expect supply of property to increase and prices to drop. Owners may at last be forced to make a decision rather than just withdraw their property from the market after a false start and buyers with savings will feel less pressure to buy as they watch prices slide and get a better interest rate on their savings. We anticipate prices to drop outside London by between 5-10% and even the prime parts of London will see little or no growth at all. Even foreign buyers, who in some parts make up 90% of all buyers, will be unable on their own to prevent price increases from easing off.
Land Tax and the European subsidy
As if the threat of a mansion tax were not enough, another spectre is now haunting the owners of rural Britain. The Liberal Democrats are proposing a levy on their acres as well.
Details are lacking but what has come out is giving estate owners nightmares, and ought to give anyone looking at rural house prices plenty to think about. The party has announced its support for a 0.5% tax on the capital value of land ‘over a certain acreage’. At any likely minimum acreage, the effect on land and house sales, and values, could be dramatic.
Whilst it may seem radical, the idea of taxing land value is not new. It featured in Lloyd George’s ‘Peoples Budget’ of 1911, when it was blocked by the House of Lords. The notion that the economic rent of land should be shared by society was widely held in the 19th century, when the economist Henry George argued in his bestseller ‘Progress and Property’ that a land tax would eliminate the need for any taxes on productive activity.
The fact that the Lib Dems support this proposal might suggest that small owner occupier farmers in the West Country and the Celtic Fringe, (traditionally Liberal voters), would be exempt. That might set the minimum threshold at above a few hundred acres. Howls of protest from struggling owner occupiers in the rest of the country might force it higher.
If the Lib Dems are at all serious about this proposal they must have ‘landed estates’ in their sights, and presumably calculate that these owners can either pay, or will sell up, to neighbouring farmers or house owners, many of whom will then let the land, or have it farmed on contract.
According to Labour party research, in the 1970s a mere 200 families owned 32% of Britain (18 million acres). Whilst some of those holdings may have diminished, average farm sizes have grown. Whatever the cut off point might be for the putative land value tax, a taxable ‘level of acreage’ would surely apply across much of the country.
Judging by farm incomes the tax would turn farmland into an unmitigated liability for many owners.
For example, the Hoddington Estate, in north Hampshire, has been on the market since May. The 800 acres comprise approx 400 acres of arable and 400 acres of woodland. The estate relies heavily on the European Single Farm Payment to make ends meet. Net income from the land is £50,000 of which 95% is the Single Farm Payment. This estate has survived by diversifying and converting the stables into 12 let cottages attracting an annual rent of £127,000 per annum. However, in so doing the estate provided work for the local builder, affordable housing for local people and taxable income for the government. The NFU has stated that these subsidy payments to farmers are “in grave doubt” from 2015 onwards. Pressure from Europe may also see a cap on payments over a certain acreage, so large estates will suffer disproportionately. Couple this with a land tax and the effects could be catastrophic. One way or another land owning families will bear the brunt of what will be a severe and unsustainable tax on land, the income from which already attracts income taxation. A firesale of landed estates faster even than in the late 1940s might be popular with first time buyers of cottages, if not with their current owners.
Would a general public enamoured of Downton Abbey and other celebrations of the class system baulk at the idea of a tax that might be the death knell of ‘landed families’? The public probably has little idea how slender are the margins on landed estates, or how much they depend on subsidy. Letters to the editor labouring the point might not win landowners much sympathy but their often considerable contribution to local communities ought to work in their favour.
Perhaps part of the reason for the landed gentry’s lingering popularity is that we can easily imagine them being replaced by Russian or Middle Eastern oligarchs. Mrs Polouvicka and her son Richard de Vere in ‘To The Manor Born’ is a popular, but counter intuitive example of wealthy foreigners who endear themselves to the locals. However, the thought of a wholesale foreign takeover would probably still raise concern.
In the 1970s the Labour government started to monitor the nationality of UK farmland buyers – in response to such concerns. If the public can be spooked with a vision of a countryside of gold plated, gated communities, an extension of Knightsbridge and Belgravia, rather than a reversal of the Enclosure movement, (as the Lib Dems may try to convince us), the land tax may be averted.
Over dependence on foreign buyers in prime central London
Hampton’s figures for Q1 2011 show that 72% of buyers in the London prime market were foreign but that figure dramatically increases to closer to 85% if you focus on areas like Mayfair and Knightsbridge. Interestingly 55% of those selling in Q1 2011 are British and a further 25% from Europe. Available stock is drying up again as many of those buying from outside Europe are buying for the long term and viewing London as their new permanent place of residence. These properties, therefore, are not coming back to the market. Lack of supply has been a constant problem and prices are artificially high.
The equilibrium is beginning to alter however. Winkworth’s latest quarterly review shows that the number of foreign buyers in central London has fallen by more than half (56%) over the last four months as the economic conditions which made London property such an attractive investment option subsided.
So what can we expect to see over the next six months in prime parts of London? Transactions will remain at desperately low levels with both buyers and sellers in short supply. But do not expect prices to continue their upward spiral. Prices outside London continue to drop/stagnate and this will encourage more sellers in London to move out, taking advantage of the differential. Buyers should remain patient and take advantage of better buying conditions this autumn.
Tax on second homes and the domino effect
Changes to the French wealth tax system could make waves this side of the Channel. From January 2012 non-resident property owners will be paying considerably more tax. The French Government is closing a holding company loophole, used by wealthy property owners to avoid tax, and is also introducing a 20% tax on theoretical rental values. This will apply to non-residents who own second homes that are not let out. It might be a vote winner with some locals who will welcome any exodus of foreign owners.
Now the Spanish are also getting tough on second homeowners. Plunging property values have produced a situation where some foreign vendors of second homes are being penalised. The Spanish tax rules mean that capital gains are taxed at an “official” valuation which may not be same as the actual sale price. It seems that Spanish nationals routinely under-report these valuations, whereas foreign vendors, less attuned to the ways of the Spanish tax system, have been caught out. Officially prices have fallen 20% since 2007 but in reality many properties have fallen by up to 50% and as a result Britons who were forced to sell below their “official” valuation are being chased for additional tax, months or even years later.
In these difficult times, our own government may also be tempted to pick on easy targets like second homeowners and foreigners. Don’t forget that David Cameron, only a year ago, was reportedly willing to see CGT for second home owners go up from 18% to 40% or even 50%. It hasn’t happened yet, but with the economy stabilising, the government may wish to take another look at that option. Pressure is likely to mount for second homes, estimated at 245,000, as well as empty properties, estimated at 870,000, to contribute more to the economy. Should this result in increased supply, prices will be under further pressure.
What next for house prices in prime central London?
For two years now interest rates have been at historic low levels. Property prices have been supported in an abnormal market where supply has been artificially low and demand has held firm or increased; sellers with mortgages were no longer under pressure to sell and buyers saw little point in leaving their cash in a bank. Added to this has been foreign demand driven by a weak pound and London being perceived as a safe haven. This has buoyed the prime central London market where foreign investors in Mayfair for example make up 80% of the total buyers. So while London has largely been cushioned against the downturn affecting other parts of the UK, the longer term is more uncertain, and even London may not be immune to the wider repercussions of higher interest rates.
While the MPC can’t make up its mind for the present, it is a safe bet to assume that rates will be going up but how far and fast is the debate right now. So what effect will any notable increase have on those who presently own property? Many have avoided being forced to sell as their mortgage rates have plummeted over the last two years, but it is these same people who will be under pressure should rates go back up. At the end of 2008 50% of homeowners with a mortgage were on a variable rate and 50% were fixed. In early 2011 the balance has shifted to 75% on a variable rate and 25% on a fixed rate (source FSA). So more homeowners than before will be under pressure to sell if they cannot keep up their mortgage repayments. Those with a large buy to let portfolio could be under intense pressure. Higher mortgage rates will lead to an increase in the CPI rate of inflation, which will add to the pressure to raise interest rates.
What will be the effect on those who have no mortgage? This is especially relevant for London. Initially the market may be slow to respond to greater supply but over time it will react. Few investors will want to see their property lose value if supply shoots up and prices go down, and so may be encouraged to cash in.
The buyer, relieved at last to find a better savings rate on offer for that deposit, may be less keen to dive into the property market, especially if prices begin to fall. This may have an adverse effect on those wanting to invest into the buy to let market as mortgages become more expensive. Those buying one property just for themselves may have this negative of more expensive mortgages more than offset by greater choice in supply. Higher rates will also strengthen the pound and so foreign buyers may decide that UK property is a less attractive option due to the exchange rate.
2011 has so far been shaped by a lack of supply. If interest rates go up by more than expected, that could all change.
Top end of the market…
The 1 Hyde Park develpoment is not the only headline grabber this week. Northacre have also reported that 55% of its development, the Lancasters, has also sold in advance of the June opening date. This has buoyed prices in Bayswater, making Northacre the second best retailing stock in Europe. Klas Nilsson, Northacre’s chairman, puts this down to “a chronic lack of supply”. One might have thought he would say it was down to a wonderful product or a triumph of a modern development in a sought after location, but no, this is frank admission of a negative factor, which is propelling the London market. This, combined with foreign interest, are the two main factors underpinning the London market. It won’t last. Those buying the 1 Hyde Park development are unlikely to see their money back unless they focus on one of the top floors. Those buying the lower floors may see their prices drop in the short term by up to a third, after the hype has worn off.
Predictions for 2011
Always a tricky one this one. The so called property experts got their predictions for 2009 horribly wrong, though admittedly did do a little better in 2010.
Estate agents in Central London report a lack of quality stock which is the common problem early in any year. So one can assume we will see the usual over-valuing as we did last year, resulting in a gap between what buyers are prepared to pay and what vendors are hoping to achieve.
This year, however, could prove most interesting. Turnover of transactions is at an all time low, so what might increase the level of supply? With inflation now at 3.7%, there is growing pressure on the Bank of England “to do something”. The expectation is that inflation will drop back so is there any need to raise rates now? Any increase in rates will put pressure on homeowners and it is pure nonsense to say that this will not affect the top end of the market in London. The market has largely stalled because too many vendors do not need to sell. However, more property will come to the market as rates go up. Much depends on how high and how fast. People have become rather too used to the cosy 0.5% bank base rate and any alteration to that status quo could come as a nasty shock to their lifestyle.
Some analysts are suggesting that buyers need to buy now in order to lock into the best mortage deal before these are removed from the shelf. Patience is required. Mortgage rates may well go up, but so will choice, and as choice increases, prices may well come down. So all eyes should be on the inflation figures. If interest rates do indeed go up more markedly than expected then prices will be under pressure. One caveat….quality property in good locations will continue to sell in quick time as they have always done. So don’t expect a bargain as it rather depends on what you are looking for.
The London market now
Autumn and the changing of the clocks often highlights those who are serious about selling and those that are not. The gap between what buyers are prepared to pay and what many sellers are hoping to achieve has narrowed markedly over the last few weeks. Supply of quality property in Kensington and Chelsea, for example, is still poor but should a sensibly priced flat or house appear, it will sell readily. Unmodernised as well as newly modernised properties will tend to be better placed to sell than anything in between. Blemished property will often be ignored. Buyers exist but they are looking for good value for money. Advice for buyers remains as it always is…..buy in the best area you can afford and focus on unblemished property. In other words, if the flat is on the 4th floor without a lift….be wary. What you buy today you must be able to sell tomorrow.
The double dip and when to buy
As we correctly forecast, confidence and asking prices appear to be slipping in equal measure. Reality is dawning on a number of vendors that if they wish to find a buyer by Christmas then they need to be sensible on what they hope to achieve on price. Confidence has slipped in recent weeks despite the FTSE continuing to show gains, even if those gains are modest.
We are probably already a third of the way down the 2nd curve of the W. This is likely to level off early next year so those planning to “time” buying at the bottom of the market would be well advised to get in before Christmas as sentiment is likely to be at its worst between now and then. The ability to negotiate the price down in your favour will diminish as 2011 progresses so the moment to buy will be when all those around you are full of doom and gloom. Those brave souls in early 2003 and March 2008 timed their transactions to perfection.
What to buy?…..Well, assuming you have a head for refurbishment, the tattiest property in the best street and the best location you can afford. Never fails.
The truth at the top end of the country market
Hanslips continues to monitor the top end of the property market and since the beginning of the year the resultant statistics make for some enlightening reading.The properties investigated on behalf of clients range in price from £2.5m up to £30m for larger estates. Geographically the properties are concentrated on central southern/south-east England though there are a few included in counties like Warwickshire and Suffolk. The sample study of around 100, all launched since January of this year, constitute both open market and off market properties. Many properties at this top end of the market are never displayed on Primelocation.com. A staggering 68% of the total sample have failed to sell. 11% are under offer, 12% have sold under the asking price, 5% have been sold at the asking price, and 4% were sold in excess of the original asking price. A large number are seeing their asking price adjusted downwards as we write. (It should be noted that when an estate agent says a property has sold at the asking price, it does beg the question whether that property had to drop the original price to a new asking price to achieve a sale.) How can this be best explained? The scrapping of HIPs and an overhang of those who wanted to sell but delayed until more favourable conditions returned, as well as renewed confidence that the worst of the recession was over, have all lead to an increase in supply. On the demand side the better economic news has been off-set by a lack of mortgage finance affecting the whole market, and the recent strengthening of sterling which has reduced the number of foreign buyers mainly relevant to the top end of the market. Don’t forget that 70% of buyers for prime central London are foreign, which obviously has a ripple out effect to the countryside. Added to this concoction is the perennial problem of over-valuing by the estate agent. On its own this factor normally rights itself during the course of year but this year it may serve to exacerbate the mismatch between supply and demand. The gap between what many sellers hope to achieve and what buyers are prepared to pay has widened. Judging by some of the recent price reductions it is clear that large chunks are being lopped off the price in order to entice buyers. It would appear that the market has run out of steam and come this autumn, if the log jam is to clear, further price slashing must continue.
- Our thoughts
- Top thoughts
- What you buy is far more important than when you buy
- “Off market” is about to get bigger.
- What next for the unpredictable property market?
- Trend Reversal
- New Year, get organised
- Brexit and buying opportunities
- Boris and the Housing Crisis.
- Carney. The boy that cried wolf.
- Housing and Planning Bill
- Back to school?
- Interest rates remain the key
- Press the refresh button on the Council Tax bandings
- Pecking order for buyers of residential property
- 12 tips when buying property
- Auctions and statistics
- "New" homes
- Thoughts archive