With a focus on London sales and rentals landscape
Residential Sales Market Update
Summer of Mini-Boom
In contrast to the quiet summer months experienced in previous years, estate agents around the country have been extremely busy. It’s not only the activity that is up, prices are up too. Nationwide Price Index reports a 5% year-on-year increase in residential house prices, of which 1% was gained in September, rest was during the summer post the lift of lockdown restrictions.
Prices were likely pushed up by pent-up demand, which showed no signs of slowing in all parts outside of the Capital. While the strong demand also attracted a healthy supply, slowly the supply will catch up and demand will ease to make price inflation in balance again. I feel such balance may already be playing out. In our investment areas Somerset & London, we’re seeing more supply and more supply coming to the market but spending longer being advertised before a sale is agreed (and often with discount, more on this later).
Who is buying?
With mortgage lending still restricted to lower LTV, it has been a difficult time for the younger first-time buyers. However existing homeowners that have had time to build up the equity in their homes, or more cash-rich buyers have been shopping for an upgrade to their existing homes. Buying bigger and grander homes. Data from Savills are showing that demand for £1m plus properties in August was more than twice what it was in August last year. With large homes in southern England being the most popular (rather than central London homes).
London Sales Dynamic
In Prime London areas, the story is similar on that there is much more activity on the higher value end. Savills reports that the number of properties worth £1 million or more marked as sold subject to contract across the capital was 87% higher in the third quarter of 2020, compared to the same period last year. Price, on the other hand, has been flat being 1% higher than last year.
Due to the recent lifestyle changes, the price of houses has held up better than flats. Areas with more affordable big family houses and lots of green have also been top of the performing areas, these being Victoria Park, Richmond and Putney. The annual price movement for properties across outer prime London with a medium-sized garden is up +4.5% when the price of flats, especially in central London, are falling.
The expectation from both buyers and sellers are lower than before. According to Savills, half of their London agents reported that vendors’ price expectations of the property they are selling had reduced, while 44% said buyers’ budgets had also decreased.
Weak Residential Rental Market in Inner Cities
Much lower demand in Inner London
While the overall rental market is busy and healthy, with Zoopla reporting rental growth in the UK excluding London up +2.2%. The reverse is true in Inner London. A combination of the current working-from-home policy and reduced international travel and tourism has meant more supply than demand, pushing rental growth in inner London to negative areas.
Rightmove finds rents in Inner London is now -6.8%, with two-bedroom flats suffering the most decline, and studio flats being the next.
A Shift in Renter Demand
Interesting to note that in Sept 2019, studio flat was the most in-demand property type. This year this has now moved to 7th place, moving to be the top in-demand is now two-bedroom houses.
Near-term Outlook
What now?
The stamp duty holiday has also helped by adding momentum by bringing purchases forward. What will happen now? We believed June to August was the golden time for sellers, however the window was small and now disappearing. Sellers that observed it and only thinking of putting their houses on the market now may be a bit late to the party. If they’ve made up their mind to sell still, they should be prepared to take lower offers than previously expected.
We are seeing more properties in our investment area fall into two categories, those that come down in price after 3 - 6 weeks on the market or to have been taken down after a similar period. Let’s not forget about the challenging economic outlook and the uncertainties of Brexit still looming around. As weeks go on, I’m getting slightly more calls from estate agents of properties being made available again as the buyer are “not in a position to continue the purchase”.
Mortgage rates are getting higher slowly, or rather in some cases not so slowly. Barclays recently added 40bps to their popular 2-year tracker rate range, not an amount to go unnoticed. London is an area we do think we will see more price reductions, especially on larger 2/3 bedroom flats which are priced out of most first time buyers (especially given the current financing terms), not on the wishlist for homeowners looking to upgrade, and is not looking too great for investors due to declining rent.
We are in favour of these types of properties that are suffering a reduction in price due to the recent lifestyle change, but in our view, this will soon be forgotten in one to two year time and people want to live in the city centre again for that convenience and sociable lifestyle.
Tina Liu
Director | Kinden Property
Feel free to get in touch further to discover more insights on UK property investment.
Sources and Further Reading: [1] UK House Price Index August 2020 Edition - Zoopla Sept 28 [2] Savills UK | Market in Minutes: Prime London Residential – Q3 2020 - Savills Oct 15 [3] Why are renters hunting for two-bed houses? | Property blog - Rightmove Oct 16 [4] Hometrack UK - Rental Market Report, Q2 2020 - Hometrack Rental Report Aug 05