Although the mass-suicide of lemmings is disputed (apparently, they’re just following biological urges and can’t always see the edge of a cliff), it would seem that property valuers and analysts are indulging in the same behaviour. The rumour-mill has been cranking out reports that prices in the residential property market will undergo a significant correction of circa 14% after the Spring of 2021.
Is this prescient foresight or doom ‘n’ gloom prognostication? Let’s look at the economic fundamentals.
One side-effect of all this Covid chaos is the growing chasm between residential property consumers and the parlous state of the economy.
‘Like the embarrassing drunk at the party…’
The UK has suffered a calamitous drop in growth and is trying to wheeze its way up a steep curve. Like the embarrassing drunk at the party, unemployment has arrived and has doubled in four months. Rishi’s budget deficit for this year is a large helping of catastrophe, garnished with fiscal disaster. It will take around 30 years to digest and the consumer will have to lie down to recover. But there’s more.
According to www.nationaldebtclock.co.uk, “The truth… is much worse… factoring in all liabilities including state and public sector pensions, the real national debt is closer to £4.8 trillion”.
That’s equivalent to around £78,000 for every person in the UK. It’s probably time to grab the smelling salts, because we’ve reached the ignominious point where national debt is the equivalent to GDP. What’s more, if the Covid second wave comes to pass, then we can look forward to another total lockdown of the country. So technically this is not what you would call a bright forecast for the residential property market.
Just before we reach out to David Koresh’s, Branch Davidians sect for a group suicide potion…
Just before we reach out to David Koresh’s, Branch Davidians sect for a group suicide potion, let’s look instead at the few signs of optimism on the horizon. At least interest/mortgage rates are at a 300-year low, even if it means that the spectre of negative interest rates is haunting the lending institutions. Equity markets are surprisingly stable, buoyed up by governments who are printing money as fast as they can spend it.
Buyers in all price ranges have been on the starting blocks since the lockdown period eased in June of this year. The urge for outdoor recreation space and a change of scene has been propelling the markets forward. I have always had a penchant for the leafy suburbs of northwest London, and it appears that this semi-rural environment is being recalibrated and much appreciated by the cognoscenti.
With most of the country stuck at home, the only holiday being taken at the moment is by Stamp Duty (for which we should be grateful), which is temporarily being withheld below £ 500,000 until 31 March 2021. It doesn’t take a Biblical prophet to realise that this sector of the market will flourish, until it doesn’t. I should add that our sales of dwellings between £ 1million and £ 3million are doing quite nicely at the moment, to the point that demand is exceeding supply – therefore, values could well be in the ascendancy, particularly amongst houses and apartments with gardens. If you’re already on the property ladder and want to move up or down the ladder then now could be an ideal time too!
Ditto the next level – properties in excess of £ 8million/£ 10million. Despite a legacy of oversupply in this sector and quarantine constraints for the international buyers who normally dominate this echelon, sales are still happening, as those purchasers who are already in the UK want to get on with their lives by securing homes for their families.
Airline carriers are hangar-bound at present. However, once instant Covid testing becomes omnipresent, I would imagine that air corridors will start opening up, particularly across the pond.
Back at the ranch; this should bring in a torrent of international buyers, desperate to hoover up available properties, which will reduce stocks further. The relative affordability of sterling, in terms of foreign currencies, is an attraction, plus the fact that prices are 40% of the levels they were five years ago. These in combination are an irresistible morsel for those who want to buy a piece of English heritage, in the greatest city on Earth.
‘When a giant stoops down to pick up a buttercup, momentarily, it is the height of a pygmy.’
As an aside, it is interesting to read the anti-Brexit press comments about how Charles de Gaulle airport, (groan and moan) in Paris, is taking over the numbers from London Heathrow, which hitherto was the second busiest airport in the world. I would say, “When a giant stoops down to pick up a buttercup, momentarily, it is the height of a pygmy.”, if you get my drift.
Where was I? Oh, yes, buyers who enjoy secure employment who need to move on, will do so regardless.
The rise of Stamp Duty rates post-Spring 2021, may curtail certain purchasers, but this will be mitigated by the government’s Help-to-Buy and assisted 95% mortgages.
The mortgage process has been mired in apathy, particularly where loan-to-value ratios are greater than 60%. These are taking an age to process and it is valuers who are the stumbling block. They are instructed to discount their appraisals by at least 20%, since they’re terrified about claims on their professional indemnity policies. There is not much buyers can do apart from gnash their teeth and wail, as these factors impede the forward direction of the market.
The additional 2% Stamp Duty that will be imprudently imposed by the government after Spring 2021, will burden foreign buyers even further, but other than that, I’m struggling to see the logic behind the prediction of a cataclysmic drop in residential values next year. This neurosis is so entrenched in the mindset of lenders that it is constraining their appetite to lend and acting as a chicane on the markets.
Make sure that the valuers/surveyors are not told the price at which the property has been agreed…
Important tip for buyers: Make sure that the valuers/surveyors are not told the price at which the property has been agreed between buyer and seller. Make them sweat by doing the job that they have been paid to do, which is to establish open market value, by themselves. Invariably, by knowing this figure beforehand, it makes it easier for them to discount this by 20%.
In the meanwhile, the rental market continues its relentless climb, with activity increasing unabashed, particularly at the higher end where uber-tenants feel comfortable by lashing out weekly rents which, in some cases, can be as high as £ 50,000 per week. Whilst these should be staggering and eye-watering events, they are becoming more common in the industry, since for these applicants who are staying in the UK for say, five years, the draconian cost of Stamp Duty at 15% (soon to be 17%), plus agents/solicitors fees, means that effectively the rent for this period is free. The government is denied its ‘pound of flesh’ but nobody is going to cry for them.
Boris’s comfortable majority may endure for the next decade. The combination of a stable political backdrop and soon to be announced freshly-minted Brexit trade agreement, means that the property market should keep going, with nothing that we can anticipate to ‘spook the horses’.
As Mark Twain so famously said, “I have been through some terrible things in my life, some of which actually happened.”
The English Lion has become a mangy, flea-ridden old moggy. We shuffle around in a fug of anxiety, terrified of whichever bogeyman is media flavour of the moment, wetting ourselves about things that haven’t occurred. And guess what? They probably never will.
You can rely on us to find you the perfect home, no matter what your budget or location requirements may be. If you’re thinking about buying a property in North West London, get in touch today!
*”The Marching Morons”, a 1951 short story by Cyril M. Kornbluth about a real estate agent, lemmings and trips to Venus. A visionary social satire that has much relevance for our times.