As we near the watershed at the end of the year, let’s look back for a second and see what 2023 was like for the Residential Property Market.
Generally, transaction numbers were down, and the time taken for each one was significantly elongated.
The Office for Budget Responsibility – OBR – (a misnomer if ever there was one) foresees that property prices will hit a low between December 2024 and early 2025. As night follows day, prices will head up again after that. It predicts that the average UK price will drop to £266,000 next year, a 7.6% fall from the peak we saw in late 2022 and still beyond the reach of most first-time buyers. By 2027, it is estimated that prices will surpass the previous peak of £293,000.
What does the OBR know that we do not?
Speaking to our agent brethren, turnover, it seems, was generally down by around 20% on average this year and most describe market conditions as patchy, but not disastrous.
The market is becoming ever more ‘price-sensitive’ and where sellers have downed a good glug of realism, transactions take place. Unsurprisingly enough, where the favoured aperitif is that intoxicating mixture of price arrogance and obduracy, properties remain unsold for years, collecting dust. I wonder why?
Counterintuitively, you would have thought with interest rates having risen exponentially recently, exacerbated by the high cost of energy and inflation, market conditions could have been much worse.
BoE more considered
On the brighter side, it looks as though the BoE has become more considered with its interest rate hikes, which are probably near, or at their peak, and the inflation rate, thankfully, has come down precipitously to circa 4.5%, so much so, that it took the government by surprise last month.
Although the Prime Minister is quick to take credit for this, as we all know, the fall in inflation is mainly due to external circumstances and the effects of the credit crunch. This lower, more sustainable inflation level is now more in common with our partners in Europe and the USA.
The supply of new homes is constrained by the financial backdrop and new schemes are not that plentiful today, as evidenced by the house builders’ results of late.
Contrasting against this, we have two exciting new build schemes to offer our clients in the best part of northwest London, which will ‘knock their socks off’ when they hear about them and these are the products that the market has been thirsting for, for many years. Watch this space…
Whilst the Chancellor, Jeremy Hunt (whose surname is not to be mispronounced!) has tried to implement some novel shortcuts with the planning process, frankly, he is still ‘tinkering with the ivories’ and only when they take a sledgehammer to NIMBYism and localism, will the bottleneck of the planning process be eventually solved. Otherwise, it will be, ‘twas ever thus.’
Rental Market
The rental market has been very steady of late, although I have to say that currently there are few properties to rent, but also fewer tenants looking for them.
The credit squeeze has affected this sector precipitously, so much so, that if your Buy-to-Let gearing is above 35%, you are forced to use your spare cash to supplement the gap between post tax income and mortgage costs.
The uber rental market up to £50,000 per week has been doing rather well this year and we expect no less for 2024. Since these extraordinarily rich tenants are choosing to rent instead of buying, they can save themselves 17%+ on Stamp Duty for the five years that they may be in the UK. HMRC effectively pays their rent for this period. This may amount to indigestion for the Inland Revenue, but it is not so terrible for the tenants.
Some middle to upper middle class property owners are concerned about the outcome of the Election next year, particularly where private school fees could attract VAT and therefore, be even more unaffordable.
International Market
The international market has not yet factored in the potential loss of the domicile tax loophole, threatened by Sir Keir Starmer. Although this is hardly an incentive, I still believe that the insatiable desire to buy residential property, in the ‘greatest city on earth’, London, will prevail regardless.
It is interesting to note that the Shadow Chancellor, Rachel Reeves, has already spent the so-called proceeds of this tax change repeatedly, which is probably going to be a de-minimis amount to the Treasury anyway. If their rhetoric is to be believed, not only will this have a negligible effect on the £140billion NHS behemoth, but this paltry amount will not even pay to change the NHS logo. In true Machiavellian style, one should never forget the value to them by stoking up the politics of envy, which is still alive and kicking amongst the left-wing zealots who are currently hiding in the bowels of the Labour Party, ready to pounce on the unsuspecting electorate.
Despite the socialistic undergrowth of Italy, France, Spain and Portugal, these countries are making provisions to create a VIP lane to fast-track a beneficial tax regime for the uber wealthy, who will be displaced from the UK when they change the domicile tax arrangements here. How fiendishly inventive are they and how foolish are we for pursuing this folly, just to appease political dogma?
Tory bloodbath
Next year’s May local elections will be a predictable bloodbath for the Tories, and I am sure that their parlous poll rating deficit of 20% will be unaffected and could well provide a landslide victory for the Labour Party in the autumn 2024 General Election, particularly if the SNP do badly in Scotland.
Personally, I don’t see any dramatic changes in residential property values next year, which I think will continue to move sideways until there is an appreciable interest rate cut, when things could improve a little.
I am sure there will be some token tax bribes in the Spring Budget, which will provide short term respite for the beneficiaries, but I doubt whether this will have any effect on the electoral outcome for the Tory Party, who do appear more like the Marie Celeste than the potential winner of the Admiral’s Cup.
If inflation continues to fall towards the 2% optimum target, it will definitely lift sentiments and should the base rate start to fall, the knock-on effect on mortgage interest rates will be palpable.
Although property has always tended to be the safe bastion against inflation, it is interesting to note that recently Glentree sold a notable property in northwest London at the same price for which it was bought in 2006 and this is not uncommon.
Elderly sellers of family homes are now choosing to rent long-term, as opposed to buying, which is a substantial change to the mindset that was the case a few years ago.
Maybe we are entering an era of flatlining property inflation rather than the unsustainable rises of yester year. This will please the first-time buyer sector which is struggling to get a foothold into property ownership and away from renting.
Taking all things into account, let’s hope next year is reassuringly unremarkable, which seems to suit most palates in this febrile environment.
With all the conflict that exists in the world, let’s hope that in ‘Blighty’ we enjoy a period of calm and reflection.
May I take this opportunity of wishing you all a happy festive time and a healthy and prosperous 2024.
By Trevor Abrahmsohn, Glentree International
