30 Apr Why are London prices on the slide?
With London property prices falling, the natural reaction is to ask why, but there is no one singular reason. A wide range of factors have shaped the development of the market, leading to movements in price, demand and availability.
The impact of the UK Government on the London property market cannot be overlooked. In December of 2014, stamp duty tax was altered, creating a blended system where buyers only paid the rate of tax for the level of property within each band. The Government claimed that stamp duty payments will be reduced for 98% of property buyers who were eligible to pay property tax.
However high-end property buyers found that they were paying more stamp duty, with a property purchase at £2.1m resulting in stamp duty payments rising from £147,500 to £165,750; an increase of £18,750.
In April of 2016, there was a further alteration to stamp duty, with an additional 3% levy placed on the purchase of additional property. A further change was introduced in December of 2017 with stamp duty being removed for first-time buyers purchasing property prices at £300,000 or less.
With stamp duty cuts and the Help To Buy scheme, the UK Government has attempted to influence the UK property market but according to Savills, London buyers didn’t benefit. In the first four years of the Help To Buy scheme, fewer than 6,000 sales had been completed, representing less than 10% of the London market sales in this period.
Even though rental fees have been increasing across the country, rental yields in the capital fell by 12.3% in the five years between 2012 and 2017. There are some investors who are happy to leave their properties vacant, focusing on the longer-term investment benefits of London property but it is landlords and BTL investors who are selling property, often at discounted figures, as they manage their exit from the capital.
Capital Gains Tax
In April of 2015, foreign investors were required to pay tax on the gains in value for property they owned in the UK. This removed a notable benefit for foreign investors, persuading some to sell while discouraging others from entering the market.
The importance of Brexit on the property market is significant although there is little agreement on the extent of its influence. While some of the property market predictions in the wake of the vote predicted Armageddon, the reality is not as harsh as expected.
Mostly, it is the uncertainty regarding what Brexit will entail which has influenced the market so far. A notable proportion of UK buyers and sellers have delayed acting but with the fall in the £ after the EU vote, the UK became more appealing to foreign investors.
For the second half of 2017, around 16.67% of prime central homes in London were purchased by investors from the Middle East, which is a significant increase on the 5% level of the opening six months of 2017.
Over-supply of new builds completing
Savills figures suggested that 46,500 new properties completed in London in 2017, rising from the 41,000 introduced in 2016. The 2016 figure was the highest number for new homes in the capital since the 1930s but fell 20,000 short of the number of new homes needed to match the number of new jobs created in London.
Not all property is the same though and with respect to market demands, the wrong type of property is being developed. The highest level of demand for property in London is for affordable housing but only a quarter of the new builds meets this criterion. With developers keen to maximise profits, it is natural they have focused on high-end property, overloading the market.
In June of 2017, the Money Laundering Regulations 2017 came into effect in the United Kingdom, impacting on estate agents. These regulations required estate agents to register with HMRC for anti-money laundering supervision, significantly impacting on compliance procedures on sellers and buyers in the capital’s property market. There was an immediate impact on money laundering, but the implementation of this regulation led to a reduction in property prices across all price levels, with certain buyers being denied access to the market.
For free independent advice regarding selling or buying a property in London or Dublin contact INHOUS on 01 513 6866 or 0044 208 7839 522, by email INFO@INHOUS.COM or visit the website WWW.INHOUS.COM