Prime London property experts offer their initial reaction to today’s momentous Brexit referendum result.
Thursday 30 June
Charles Curran, Principal and Data Analyst at Maskells
“Post referendum, the property market is still processing the impact of the vote. With limited direction from Westminster as to when (and even if) we trigger article 50 (and repeal the 1972 European Communities Act), we are in for a period of moderate price volatility.
As at today, for Prime London we do see house prices dropping no more than 10%, but given the low cost of mortgages, people will only sell if they can secure the same discount on the property they buy. We do not believe that there will be any greater number of forced sellers today than there were 12 months ago. Given what we know today, we do not expect to see house price movement reaching the range of the Chancellor’s prediction of -10% to -18%. In PCL, the market was already subdued going into the vote as a direct result of the onerous stamp duty rate.
We do expect vendors to reject offers which are 10% below current asking price and consider offers 5-7% below current asking price. These were expensive homes to buy and if not forced by circumstance, the vendors would rather wait to sell at their preferred price. However, as we are in uncharted territory, price discovery remains key; anyone considering buying or selling should take advantage of the volatility. It may be that you can get more for your home than you think and you may be able to trade up into a property which last week was unaffordable.
What is key is that we don’t really know yet how this is going to play out, but what we do know is that with a large Stamp Duty transaction tax being a barrier to liquidity, the government needs to reduce the tax now. We consider 7 per cent over £925,000 as being fair and this may spur the market and produce tax revenue which is now so desperately needed.
On the lettings front, we have seen a 65% increase in applicants this week compared with this time last year. This is most likely pent up demand, which had been waiting for the outcome of the vote. That said, our PCL stock levels are still 40% higher than they were this time last year so we do expect some short term pressure on rental prices.”
James Robinson, General Manager at Lurot Brand
“Keep calm, keep hold and remain in Prime Central London post Brexit.
As expected we have been inundated with calls from both sellers and buyers asking how Brexit will affect the property market. We could debate for days whether this is a seller’s or buyer’s market, however it is said that the best way to predict the future is to study the past. Unless you can take advantage of a running scared European seller, mid Brexit is probably not the best time for the short term speculative property dealer looking to flip properties for huge profits. However, it is a good time for the long term investor/owner occupier looking to buy the best property in the best locations, with less competition at more sensible prices.
In the late 1990’s a friend of mine, certain that the market was about to crash, sold his house at the peak of the market. His intention was to rent until the imminent crash when he would make a killing. He is still renting. The temptation remain out of the market and rent should be avoided because you will squander in rent whatever you may gain by trying to play the market, plus you will miss the moment when you could have made the necessary gain to make it worthwhile.
Unlike any other investment, a Prime Central London house is on every investor’s wish list. Not only will it keep rising in value, but it will usually have some kind of development opportunity (which if you live in it will bear tax free gains) and it will always let well.
Since London was built, its houses have always outstripped wage growth. These graphs show house price growth in Holland Park Mews ranging from their original 1870 sale price of between £85 – £147 to our recent record price of well over £3,000,000.
They have been smoothed but in the first 121 years, the growth ran at an average of £83 per year when average middle class wages were a steady £150 per year and remember this period included two world wars and a great depression!
Through the most recent generation, 1991 – 2016 they have leapt an astonishing £3,000,000 in value, an average increase of £120,000 per year, while the average London wage is currently running at £48,000 per annum.”
Will Watson of Middleton Advisors
“In some cases, there has been some immediate “panic” from buyers in London, notably withdrawing from purchases that were agreed before 23rd June. This has typically been from discretionary parties who do not have to transact this year. Contrary to this, some agents have seen enquiries increase from international buyers looking to take advantage of the current value of Sterling. This, coupled with the recent reductions in asking prices this year, gives comfort to investors looking for a long term hold in the capital.
Given how discretionary Prime Central London is, we are not going to see “panicked” or “forced” sellers anytime soon. If anything, property could be withdrawn due to the uncertainty of the market, which will underpin values as supply will be restricted. Vendors in London may well take the stance of waiting until “the dust settles” and the recent result has been fully digested before listing their properties, ultimately when confidence returns. All in all, there are too many unanswered questions and the market is still coming to terms with the result. Prices may come off further, but we are much more likely to see transaction levels reduce in greater numbers whilst the government reforms, giving the London market time to regain its confidence.”
Tuesday 28 June
Alex Newall of Hanover Private Office
“Uncertainty rather than logic is fuelling worry in the market, but Prime Central London investors in quality will always hold quality property stock.
Brexit has weakened the GBP. Middle Eastern buyers are on the phone using this as a buying opportunity. One of my clients has put aside £25m specifically to invest into two and three bedroom, flats in Prime Central London, which will be rented out for the next five years. It is our task to acquire the property and manage the portfolio and we are in the market looking to buy now as a direct consequence of Brexit. Aside from that, on Friday 23rd June post result, we received a £9m bid in Surrey and are in negotiations on a £5m deal.
Other concerned investors are buying gold and being a little more emotional because it was a divisive non-legally binding vote and we are yet to have a clear road map. It is a big decision for the UK, and ultimately it has thrown up lots of questions. However, it is generally worry based on the uncertainty as opposed to logic. There will be volatility in the financial markets. The underlining basics of the UK economy mean the volume of property sales may fall, but prices will be underpinned by the strength of the UK economy. Bear in mind, London has softened for non-prime areas such as Vauxhall, Nine Elms, but investors in quality will always hold quality. Lawyers will be making a lot of money and hedge funds made a fortune over the last few weeks; and I am positive some of them will want to upgrade their life styles, committing to buying expensive homes in prime locations.
The world will not stop, but there could be some worry over the coming few months, but long term investors are ready to take full advantage! At the end of the day, Knightsbridge, Wentworth, Belgravia, Mayfair are all limited in size and throughout history the wealthy have always wanted a home in these prime pockets. The wealthy have not really wanted to venture out to Vauxhall or Nine Elms. I envisage that housing stock will become more valuable as their numbers are not expanding; in the past, developers have largely built flats and not houses in the key super prime areas. Not everybody wants to live in a flat, so terraced houses could be in the line for some good price growth.
We could see prices rise with inflation and if interest rates are lowered. Equally, if the GBP weakens too much, interest rates may rise to sure up the GBP and this would add more cost to the housing market. The GBP is currently at 1.34 to the USD. Personally, I see the next three months as a huge opportunity, thought through carefully with sound logic to support a position. Assets which support basis human needs will be in huge demand (water, electric, sewerage, communications and so forth; therefore I don’t believe Data centres or Thames Water’s Head office etc will fall in value. I actually believe that they will become more in demand from pension funds and investors; investment funds have to invest, or they will be out of business.”
Anthony Pears of Lurot Brand
The Brexit result is essentially the catalyst for the actual correction in the market. Over the last 24 months, achieved sale prices have remained relatively constant in our market – asking prices certainly came off a little and the number of transactions has declined. Vendors who do now need to sell are more likely to cast their optimism aside and ask a more enticing and realistic asking price, which may well result in the actual correction in achieved sale prices taking place.
At £3,300,000 this house was priced optimistically. With a ‘Remain’ vote, the view was that this may well have been achieved in the back end of this year. However, the vendor is motivated to sell, ideally requiring the assets to complete an onward purchase. Given the Brexit vote he is taking a more realistic approach and has reduced the price by 10%, which now makes it an extremely attractive opportunity when compared to other available stock, where the vendors are less motivated.
Given the lack of motivated vendors often with little or no borrowing in the area, our view is that a shortage of supply is going to hold prices fairly strong for the foreseeable future. Owners of property in Central London are very aware that in the long term prices have historically gone up and up with corrections that come from time to time. So unless they have a clear need to sell they simply won’t.”
Brendan Roberts, Director of Aylesford International
“I don’t think anyone knows what is likely to happen yet.
I had an email on Friday immediately after the result from a Trust client based in Jersey who looks after some Middle Eastern clients, he said that London property is now 10% cheaper for buyers in the Middle East and as a result, anticipates a real appetite from ME buyers who are now planning to be in London in mid July as soon as Ramadan is over.
On the other hand I have an American seller, who is deliberating because he senses that the market is soft and uncertainty will mean that his Belgravia flat is unlikely to attract much interest. As a result of the Brexit result and the reaction of the markets and the weak pound, he has decided to hold onto it until he feels confident that the market is there.
In the past, currency ‘crisis’ interest rates have gone up sharply to bolster the value of sterling, but the papers are telling us that the Bank of England is ready to reduce interest rates to zero, therefore I don’t see any rush for the exit unless rates rise significantly, which really would create a problem and a correction in value.”
Marlon Lloyd Malcolm at Lurot Brand
“The majority of the country felt that it’s better to leave the EU, therefore logic would dictate that we have a majority who believe we are now in a better place and consequently, are more confident about the market. That’s not why we feel buoyant; instead I think with currency shifts and the fact that for all overseas buyers property in London has now become 5-8% better value since last week, which means we could see a bit of a bubble for areas that attract foreign investment.
Needless to say our advice is to not adjust prices at all. If anything, those that are doing this now, are doing it because they had inflated asking prices irrespective of the referendum.”
Friday 24 June: 10.00 am
James Robinson of Lurot Brand
“Wow! We have been open for one hour and have received more offers than in the last month for the mews houses we sell and they are mostly from foreign buyers, Monaco, China and America.
The weak pound is attracting a lot of investment so stop panicking everyone life will go on. However we have lost a £2.8m sale in South Kensington to an English buyer over concerns about his future income.
The UK is the fifth largest economy and London is the greatest city in the World this has not changed overnight.”
Alex Newall of Hanover Private Office
“Stay calm, there is still a property market. We all need somewhere to live as a family or a business – the world will not stop. We are closing deals, despite a measured Brexit in two years’ time. This is not a time for a knee-jerk reaction.
We can no longer use past data accurately to help predict the future. Over the next two years, until Brexit actually happens, gradually the rule book will be re-written on asset prices in the UK. Yield hunters, e.g. pension funds, will have to be careful to protect their underlying asset value over the next two years and pre-planned exit strategies will need to be considered. A long term strategy on safe, stable income streams will attract major interest. Sectors such as student housing, assisted living (old peoples’ homes), and supermarkets (i.e. basic ‘need’ businesses) will see more interest than luxury/‘want’ markets.
Despite many already pricing Brexit into their strategies, the pound will continue to be volatile and until it stabilises, foreign investment may pause before it pounces on the property markets. We will see the volume of transactions increasing over the next six months.
As the GBP continues to be volatile and the USA’s economy is so strong, we could start to see American buyers being a force in the market, something we have not seen for a long time. We have formed new relationships with agencies from Los Angeles and New York ready to capture this wave of inward investment to the UK.”
Charles Curran of Maskells Estate Agents
“The market has been filled with uncertainty over the past couple of years and now that we have voted to leave, this draws a line under a major obstacle in getting the Prime and Prime Central London market back on its feet.
There is no doubt that the slowdown in the market prior to the Referendum was as a result of the Chancellor’s ill-conceived increase in Stamp Duty and as such we do not expect to see an increase in prices.
We expect the domestic buyers to remain subdued, perhaps opting for rental accommodation (rents being low for the time being due to oversupply and high cost of acquisition) but we do we expect more interest and volumes from overseas buyers. An unwanted consequence of leaving the EU is that our currency will depreciate making property cheaper in net terms compensating for the high SDLT in Prime and Prime Central London.
Why would they want to buy here? For the same reasons they always have – London is the greatest city in the world to live in – and we are not biased!”
Anil Varma of Harrison Varma
“As an employer, we are concerned for the welfare and peace of mind of our 150+ employees comprising 17 nationalities including eight different European countries. It is extremely unhelpful that there has been no clarity or planning for the future. I would urge an early announcement to allow our staff, many of whom have established themselves in London making a home for their families, to plan ahead for their future.
We are now heading for a long period of huge uncertainty. We do not know how this will affect our buyers – both UK & overseas, or our European employees. We need early decision allowing us to plan our business. When we started our latest development project – Buxmead in The Bishops Avenue, Stamp Duty was 4% and it has now increased to 12% plus an additional 3% for second home owners. This coupled with the changing rules for non-doms and now Brexit means we can never plan ahead as this is a time of major change and will have a long lasting impact on the British economy.”
Mark Parkinson of Middleton Advisors
“I think we can only stick to ‘knowns’ as we are now in uncharted territory. As far as our world is concerned British and non-European buyers’ decisions to buy are unlikely to be massively affected by Brexit in the long term- no-one yet knows how this will affect European buyers.
In terms of the UK prime housing market, we expect little or no effect on the country market as people tend to take a long term view when buying country houses. The prime London market depends on so many factors it is difficult to make a prediction. In the short term one of the main certainties is that trading levels are likely to drop off markedly as buyers ‘wait and see’ what happens.”
Simon Deen of Aston Chase
“After two months of the most divisive debate in recent political memory, the British public have proved the bookies wrong yet again, and voted to leave the EU. The truth is that no one is really sure what will happen next.
Sterling, which hit a 2016 high only yesterday, could well fall, making London property more attractive to foreign investors who for some time have seen the British government try to ‘tax’ them out of London. Are we better off out? Only time will tell. In the short term buyers will see the market as being in their favour, and it is arguably the developers and vendors who will now decide where we are heading.”
Friday 24 June: 7.00 am
Ben Horne of Middleton Advisors
“Despite the sense that leaving the EU and the time it will take to negotiate our departure will generate uncertainty and create a drag on the property market, in reality life goes on and young families will continue to leave London in search of country life, along with factors like inheritance and debt.
Those factors that create ‘churn’ in the market cannot wait for two years (the estimated re-negotiation period) and so it’s likely to return to normal activity levels after a short pause.”
Andrew Langton of Aylesford International
“The referendum has divided families similar to the Spanish civil war, exposed a number of duplicitous politicians, caused mayhem amongst bookmakers and desecrated markets.
Since the Chancellor’s hike in SDLT coming into effect in April 2016, the London residential market has been very quiet and subsequently the indecision caused by the referendum brought it to a virtual standstill in Q1 and Q2 particularly at the higher end.
So where do we go from here? After the Chancellor has introduced an emergency budget in which he increases income tax, corporation tax, inheritance tax and reduces the defence budget but maintains overseas aid, the vote to leave could now see us heading for absolute chaos.
We should remember that we continue to have the highest stamp duty rates in Europe to factor into some of our now overpriced properties and within ten months a number of non-doms will be leaving town. This is not a time for the faint hearted.”