Economic uncertainty and punitive surcharges in the form of stamp duty land tax, foreign buyer levy announcements and capital gains tax changes have resulted in the continued stagnation of the London and country markets throughout 2018. This economic and political uncertainty is likely to continue impacting on the London market while the country transitions out of the EU in 2019.
Competitive pricing will be king throughout the year ahead, especially in the prime central London market.
Vendors who adopt a realistic approach to the price of their property will however attract buyer interest as needs continue to dictate decision making. A pragmatic position on transaction prices will be essential, although there is no generic amount that sellers need to drop their asking prices by to secure a sale – every price band across the London market is sensitive in its own way with price increases and decreases fluctuating across the boroughs by as much as 17%.
Guy Bradshaw, Head of Residential at United Kingdom Sotheby’s International Realty, commented, “2018 was never going to be an easy year for the housing market, London in particular has faced much adversity this year, with foreign buyer tax announcements and stamp duty surcharges still weighing heavy on the top end. Residential property transactions are incredibly susceptible to changes in stamp duty with huge peaks and troughs closely linked to the end of tax breaks and the introduction of punitive high rates seen over the last decade.
It is looking likely that parliament will vote on Theresa May’s deal in mid-January ahead of the 21st January deadline. We anticipate domestic buyers sitting on their hands in early 2019 as the Government seeks to broker a deal between themselves and with the European parliament. The recent political infighting and continued uncertainty is dampening confidence, so it is essential that clear direction is provided on the UK’s future relationship with Europe and the rest of the world as this will stimulate the market and instil confidence in British buyers.
No matter what happens with Brexit, London has enduring appeal at home and abroad as an international hub for culture, business and education. Compared with the geopolitical risks in many other countries, London is still a safe investment and will continue to attract buyers from around the world. While 2019 is undoubtedly a year of transition, I am confident that the prime central London market is moving in the right direction.”
Stamp Duty Land Tax
Stamp duty costs continue to impact the buoyancy of the market and the ripple effect of introducing a new levy or altering tax bands can see significant peaks and troughs in transaction levels. At the higher end of the market buyers are faced with punitive stamp duty costs, especially around the £1m-£3m mark, unduly impacting London where this part of the market is concentrated. The additional surcharge levied on second homes, introduced in 2016, has deterred some from purchasing and is culpable for a slow-down in the prime central London market. The proposed introduction of further taxes for foreign buyers will, if introduced, create a fluctuation in the market as buyers look to transact ahead of its inception. Recent HMRC figures show that in Q3, which should be HMRC’s most profitable time in the year, there was a 9% decrease on tax receipts.
Guy Bradshaw, commented, “While it was reassuring to see the government climb down from their original 3% foreign buyer stamp duty levy, the proposals do nothing to present Britain as a place for the rest of the world to do business. As we prepare to leave the EU it’s vital that we are globally open.
For many of our clients the 15% stamp duty they pay is already a sizeable amount, so the government’s consultation in the New Year needs to take this into account and listen to the detrimental impact additional taxation could have on an already fragile London market. The most recent tax receipts should be a big enough signal to Phillip Hammond that stamp duty needs to be reformed in 2019.”
International investment
In early 2019, ahead of the probable introduction of a foreign buyer levy, the biggest driver for London’s prime property market will be foreign investment as individuals look to hedge their bets with the good currency play. Based on current interest in the UK market, UK Sotheby’s International Realty is predicting that American buyers will be particularly interested, with the exchange rate potentially offering US buyers a 25% discount on properties.
Investment from Asia is expected to continue with particular attention coming from mainland China, where education is key to buyers relocating to England to gain access to world-class institutions. UK Sotheby’s International Realty’s China desk is increasingly transacting with vendors and prospective buyers using social media platform WeChat.
Guy said, “We have already seen significant interest from American buyers who are eyeing up the favourable dollar to sterling exchange rate. The economy may look weaker today, but the property market is resilient and it is forecast to bounce back by 2023. Buyers adopting a long-term outlook will be making a savvy investment by purchasing in 2019.”
London lettings
The lettings market has shifted in 2018 with a new tribe of renters coming to market. The growing UK Sotheby’s International Realty lettings team has seen a key trend in the prime central London letting market in the latter part of 2018 that they predict is set to continue into 2019 – a rise in tenants adopting a buyer’s approach to finding a rental property, taking up to six months to find the perfect property.
These renters have very specific ideas of the location and the type of property they are searching for, with some waiting up to six months to find the perfect property and when doing so will make substantial changes to the property, such as fitting a new kitchen, which will not only increase their quality of living at the home, but add value to the property too for the current landlord.
James Somers, Head of Residential Letting at UK Sotheby’s International Realty, continued, “Our lettings business has exploded in the last 12 months, reflecting a shift in the prime central London market. One of the key drivers behind this has been the rise of ‘try before you buy’, which has been particularly prominent amongst families looking to upsize but who need to relocate to a new area to afford this.
These families are able to achieve a strong rental income which is often enough to cover the rent of a larger apartment or house in suburban London while continuing to hold onto a valuable central London asset.
Schools play a large factor too – families will often move to be within a school’s catchment area and if there is little available to buy then renting is the only alternative. With top Ofsted rated schools having such small catchment areas, properties in these locations rarely come to the sales market. Paying a premium in rent to be on a top school’s doorstep can often offset the costs of paying school fees.
In recent months we have also started to see renters adopting a buyer’s outlook, taking longer to find the right property and even refurbishing properties to make them perfect for them before taking up tenancy. And it is not just soft-furnishings, but remodelled kitchens and entirely new bathrooms. We anticipate the trend for tenants operating like buyers to really take off next year as the rental market in London continues to expand and attract an increasingly diverse tenant profile.”
Country market
UK Sotheby’s International Realty’s office in Cobham, which lists property in the surrey town and surrounding area is predicting a slow start to the year with the south east of the country likely to see prices dip by up to 2% in the first quarter of 2019, but rally thereafter to current levels.
Jason Corbett, Director of Country Sales & Lettings, said: “The ‘must move’ market will most likely be the main driver of 2019. Despite the fact that now is arguably the best time to strike a deal, many potential buyers may continue to resist the urge to move until we have further clarity on Brexit.
This is a missed opportunity for second steppers, as while their home may have reduced in price due to market uncertainty, the property they are looking to purchase, which is likely to be larger and if in the same location arguably more expensive, is likely to have had a price drop too. It is no secret that higher value homes generally suffer the most in tough markets, so those looking to upsize should monopolise on the current prices which offer more for their money.”
