Over the last six weeks I have read many differing reports about the impact Brexit is having on the property market, the majority of which are very pessimistic. However few reports point out that there were problems long before 24th June 2016. The sales market peaked in June 2014 and since then it has been slowly coming down, the various tax changes to SDLT, CGT, IHT, criteria for which non-doms can stay, interest relief on rental properties and ATED increases. We have also had two referendums and a closely fought election to boot!
However despite Brexit, there have been some strong business announcements recently: Wells Fargo announced post-Brexit that it had bought a new £300m European HQ in London, albeit the deal exchanged pre-referendum but was announced after, providing confidence in the future of the City. GlaxoSmithKline announced they are investing £275m in manufacturing sites across the UK which is again, a notable positive.
Unfortunately for the property market, one effect in the timing of the Brexit vote has been to bring forward the normal summer lull in sales activity. I have always considered the best months of the year to buy property are August and December, although this year I would also include July which saw an uplift in activity in the immediate aftermath of Brexit, and September, as I believe that there will be a delay in the onset of the Autumn market with clients taking their time to consider the big commitment to purchase. That being said, I have seen increased interest from overseas buyers who are looking to take advantage of favourable currency rates and are in London for the summer wanting to acquire property.
Transaction levels are currently down year on year, but in a perverse way Brexit has helped unlock the market. Had the decision gone the other way, sterling would have strengthened and the prices firmed, causing stagnation in the market. The events which took place on the 23rd June have given a tangible reason for vendors to listen to their estate agents and reduce prices. Yet while prime market sales are down by a fifth year-on-year, they haven’t collapsed and there are number of deals being done. In a recent research note on the impact of Brexit on the prime market, Savills states that “a relatively high proportion of sellers have already adjusted their price expectations, and there remains a steam of demand for good quality, well priced stock.” I have certainly found this to be true and such properties are trading well. One of the misconceptions is that there is blood on the street and panic in the air – this is simply not true of the prime central London (PCL) property market where there are in fact very few forced sellers. According to the English Housing Survey at the end of 2015, outright owners outstripped those with a mortgage for the first time since the 1980’s; this is particularly true in PCL. Even for those with mortgages, the historic low interest rates, especially in light of the Bank of England’s recent cut, has eased financial pressure to sell.
One of the other things that I have noticed is how the market has retracted into the golden London postcodes of old. Since January 2010 until September 2015 there was a notable shift in where our clients wanted to purchase. Looking for value, we searched outside of our traditional hotspots, buying a number of properties in the east towards Canary Wharf and as far west as Richmond and south, towards Wimbledon.
What has become evident in the post Brexit world is that the interest from our clients has retreated back to PCL, and the golden postcodes of SW1X, W1, SW3, and W8 (Knightsbridge, Mayfair, Belgravia, Chelsea and Kensington) is where the demand is. It is reminiscent of the flight to safety we saw after Lehman’s collapsed and the ensuing financial crisis. Then, as now, was not the time to be purchasing in marginal areas, especially when there are some good opportunities in PCL itself. Historically these areas have been the last to be affected by a downturn, but the first to recover as was very evident in 2008/9. They have been London’s hotspots for years, with world famous addresses, excellent housing stock and infrastructure, and in the case of Mayfair improving infrastructure with Crossrail due to open. They are highly prized assets, offering best in class properties. The restaurants and shopping are world renowned, and they are proven safe areas.
Already it is evident that the best preforming areas in terms of the number of transactions since Brexit has been in PCL, and that is across all price ranges. It will be interesting to see how much the map above retracts back to PCL throughout the next 12 months.