If you’re in the market for a property (or in the property business), the comparatively chilled Summer transforms into one of the strongest markets of the year, the Autumn market, which we are now in the thick of.
There’s always some trepidation that surrounds it. Over the last decade, from the (then) peak in 2014, the UK property market has become rather unpredictable. No longer an animal that could be relied upon, now instead a skittish beast with plenty of power but unleashed in all manner of mysterious ways. What can we reasonably expect from this creature over the coming months? Let’s analyse the data and find out.
Let us begin with the changing of the guard. The property market never likes uncertainty, and that’s what the election brought, this was quickly washed away with a large amount of business in the prime £5m+ market going under offer in the week immediately following, after a month of very little action according to the agent only site, LonRes. Across the market as a whole both sellers and buyers have been out in force with the number of sales being agreed up 16% from the near-peak-mortgage-rate of a year ago, according to Rightmove. This new data has led Rightmove to adjust it’s 2024 prediction from -1% to 1%.
“500,000 millionaires will leave the UK by 2028. Equivalent to a 17% fall.”
Of course this has likely little to do with the new government and more to do with the recovering economy and lowering interest rates. With the best 5-year fixed rate at 3.83% (at the time of writing) for those with a 40% deposit. This is the lowest rate since September 2022. There are still many people on lower rate mortgages that are yet to step outside into the new higher rate lending environment. This may well drive more people to sell, though in reality those in lower markets simply can’t afford to do so, and will likely be forced to swallow even higher costs compounding the cost of living crisis. Those in the middle and upper markets, unless stretched beyond their means, will simply retain their property and absorb the higher rates. Instead interest rate cuts are more like a ray of sun on a cloudy day, it encourages those to get out and make their move whilst there is some respite. It makes good headlines too, and almost nothing drives sentiment and therefore the market more than the media.
Meanwhile the new Labour government were voted in, achieving an enormous majority of seats, and power. Of course we have yet to see what this means for the property market, and especially lettings. Whatever your political persuasions, they seem to be making changes, quickly, some of which may have big impacts on the market. For example the Rental Reform Bill, potential inheritance tax increases, and generally speaking an increase in tax on wealth over income. With a large majority of household wealth held in property, 32% according to the Office for National Statistics report (2018-2020), it is likely in line for some taxation changes. Any economic benefits or disadvantages from these changes won’t likely be felt for sometime, but you can rest assured the market will respond rapidly to any announcements.
We recently instructed a search for a £7m house in K&C, only for it to be called off. The buyer changed their plan, moving to Milan instead.
Which leads us on to a worrying statistic, that more millionaires (those with assets of £1m or more outside their main residence) will leave the UK than anywhere else in the world, except China. With the UK being “just one of three locations worldwide to have seen a net loss in the decade since 2013. By contrast the ranks of wealthy have grown in the US, Canada, Australia and France over the same period”, according to a report this year by Henley & Partners and reported widely on CNN.
Despite non-domiciled status individuals shelling out nearly £9Bn in taxes last year to HMRC, according to official data, current ‘non-dom’ status will be no more from April 2025. It is widely reported that many of these people will take their wealth and spending power with them when they leave the UK. Although it really does depend on who you talk to. Many who deal with these illusive individuals have different things to say. For example Jamie Freeman from the buying agency, Harringtons, said in a recent article in PrimeResi; “The stark reality unfolding before us is that not only wealthy non-doms but a broad spectrum of individuals are contemplating an exit from the UK, with destinations like Milan, Dubai, and other tax-friendly jurisdictions growing increasingly appealing.”
This echoes with our own sentiment which is that increasingly, other countries, those where taxes are friendlier, there are good private schools and healthcare, a good quality of life, and let’s not forget, better weather, such as Madrid, Milan and Lisbon, even Cyprus are becoming attractive. Indeed our Kensington & Chelsea broker Jeremy Creasor shared a recent anecdote, “we recently instructed a search for a £7m house in K&C, only for it to be called off. The wealthy buyer changed their plan, moving to Milan instead”.
The advent of remote working, and the growing trend of remote staffing, mean that many who own their own businesses are probably in a better position than ever to have choice. This is backed up by a recent Wealth Report by UBS bank which said that ‘“500,000 millionaires will leave the UK by 2028”. Meanwhile, other commentators suggest that we won’t see a large exodus, but rather a slow decline, as more are put off from coming in the first place to replace the trickle leaving.
If the predictions are correct, and we see less wealthy coming, as well as more leaving, plus compounded by any tax changes on wealth itself, then we should expect the upper markets to suffer. There will simply be fewer buyers in the upper market.
"Since 2014 UK houses prices are up on average over 40% in the decade, whilst Prime London property £5m and above has shown no increase on average."
This top down change may not have much of an effect of the property market as a whole, rather we may see longer term economic decline, which in turn would. We expect these changes over the years to become more relevant as countries switch on to offer more incentives to the global wealthy (those with wealth who can move easily), and the concept of citizenship becomes more fluid in the coming decades. With the oft-quoted top 1% paying 30% of all income taxes, not to mention their associated tax revenues from their business activities, and employees, it will be interesting to see how the world is set to change, with likely more global hot-spots competing in the prime property space.
Data picked up by LonRes from the Nationwide Price Index seems to confirm this trend, where since 2014 UK houses prices are up on average over 40% in the decade, whilst Prime London property £5m and above has shown no increase on average with more looking to sell in the sector as well. “There were 28.4% more new £5m+ instructions in July than a year ago and at the end of the month there were 27.2% more £5m+ properties for sale across prime London than a year earlier. Compared to the end of July 2019 (five years earlier), there is 61.7% more available stock.”
However our Notting Hill & Holland Park specialist, Chris Shaw, has noticed that “prices between £1.5m - £3m are particularly active”, and that there is a growing trend in those looking for “turnkey homes due to increased renovation costs”, though he is expecting the market to continue strong despite the above.
Outside of London, properties in the Home Counties having pumped during the pandemic have more or less maintained their value, with commuter towns generally speaking starting to cool marginally over the past year, as the chart above illustrates.
Continuing a trend we see in the data, and anecdotally across our large broker network that stretches across London and into the Home Counties, we believe we will see more home-owners in prime areas of London, where mainly Victorian terraced houses sell from between £1.3m and £3m, being tempted to sell up and head out into the country. With a continued movement from inner London to the peripheries. Mainly due to work flexibility but also changing social dynamics within London itself. “A quarter of UK employees now work from home for at least part of the time” according to a new study by Unispace. This may be accelerated marginally by the proposed VAT increase on private school fees which would, in the case of one of our sellers “drive them to look for better state schools outside London if private gets beyond their reach [in London]”. New research out by the bank Santander seems to back this up, which says parents are prepared to now pay up to 25% more for a property within the catchment area for one of the top 500 state primary schools. Our Gerrards Cross broker, Sally Jane Hobson, has also noticed a: “recent surge in down-sizers motivated by inheritance and capital gains tax changes”, which aligns with those London buyers looking for bigger homes outside the capital and is perhaps reflected in the 23% rise over 5 years in the area.
“Recent surge in down-sizers motivated by inheritance and capital gains tax changes.”
This general trend should continue to support outer London prices and may well have an affect on London prices over time. According to a recent YouGov survey, “a quarter of adults currently living in London said they wouldn’t be in 5 years time”. London will always be attractive, maybe less so for families these days, and therefore proportionally more so for young professionals without children. With 63% of London mothers having children after the age of 30, according to data from Business Insider, will we see more competition in the flat market comparatively?
In counties away from London, such as Somerset, Gloucestershire and Devon where the gravitational reach of London buyers is lower, house prices have still increased, 1.4%, 4.6% and 6.8% respectively during the period of June 23 to June 24, according to the Office for National Statistics. Jonathan Mowday, our Devon broker echoes this sentiment, “quite recently there has been a boost in buyer confidence and increased market activity.”
Potential inheritance tax changes may also push older homeowners into selling earlier, and younger families are always drawn to the countryside, especially to live nearer to their grandparents. With buyers in the upper country markets more fussy and looking for a “once in a lifetime purchase” we may find the best properties achieving record prices, though we cannot remove the increased cost of renovation and building works, which for many buyers is increasingly more of a turn off and drives harder negotiation.
“A quarter of adults [surveyed] currently living in London said they wouldn’t be in 5 years time.”
In well connected country cities such as Bath, our local broker Sharon Clesham has pointed out that there appear to be “less buyers in the market, though more genuine buyers, and with the market remaining highly price sensitive”.
Meanwhile, mention rentals to any landlord, tenant or estate agent and they’ll all have something passionate to say. Rental prices increased enormously over the pandemic, though their growth is starting to slow. Up 3.7% in London based on a recent report from Zoopla, though the number of households chasing a single rental is still more than double pre-pandemic levels at an enormous 15. In short prices are up massively, and rental supply is low. Though according to Zoopla, “the growing un-affordability of renting should start to act as drag on rents rising further.”
There are also a further raft of regulations coming in on the tide with The Renters’ Rights Bill which is expected to be in place by the end of this year or early next. With measures such as banning no fault evictions, increasing regulation on rent increases, giving tenants the right to keep a pet and making it illegal for landlords to discriminate against tenants on benefits, for example, will mean more private landlords will leave the sector.
“22% of all newly listed homes for sale in inner London during July were available to rent at some point in the past decade.”
Average rental yields in London are approximately 4.9%, and with low house price growth it is becoming an increasingly less attractive option to park capital for a return. Especially when maintenance costs, new regulations and potentially a change in Capital Gains Tax are applied. All this is leading to a shrinking private rental sector with a new generation of potential landlords deciding not to enter the sector, with new buy-to-let purchase lending down a whopping 53% during the whole of 2023, and current landlords selling up to escape new taxes, regulations or simply because they are winding down investments for retirement. It is burning the candle at both ends. The analytic company TwentyCi found that “22% of all newly listed homes for sale in inner London during July were available to rent at some point in the past decade, marking a 10-year high.”
So, as the leaves fall and the Autumn market continues we watch its behaviour with interest, and contemplate the upcoming budget on October 30th, and what changes it may bring. We expect a more compressed Autumn market with an increased activity, as some quickly attempt to re-arrange any imminent property positions. Because as the uncertainty around the announcement, one which the Prime Minister has said “will be painful” puts off some making any decisions until it is announced.
Whatever the outcome, we believe the UK needs to be careful not to keep banking on its premium brand too much to attract wealth, the world is changing and it needs to be investing in brand UK to compete in a changing and competitive market place. Two trends seem to be evident, one is that higher earning families will likely continue to disperse from London, and two, the super wealthy are leaving altogether (if you believe the stats). Both these could lead to a hollowing of wealth from the capital, the UK’s major international connector to investment and culture. Neither of which would be a good thing.
Taken from our Fall issue of the Moveli magazine. Read the full edition here.
For expert advice on your local market dynamics please contact one of our Moveli brokers who on average have over 17 years experience.
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