Activity in the residential property market in London has been suppressed since last summer for a variety of reasons but the most commonly quoted is the uncertainty caused by the impending General Election.
The Election is having a significant impact. Economic activity is heavily affected by political uncertainty, amplified by housing policy being high on each Party’s agenda. The main concern is over potential polices that may be introduced by a Labour government including rent controls, minimum-term tenancy agreements, a Mansion Tax along with other implications for the higher end of the market and overseas owners.
This uncertainty has affected market activity in London which has seen reduced transactions. Sales volumes were 20% lower at the end of December 2014 compared with the previous year. It is interesting to note that at the higher end, the number of properties sold at £2m+ has seen a lower than average reduction in volume with only a 10% fall in demand. However, the impact of higher Stamp Duty (in effect from 4/12/14) and extending Capital Gains Tax to non-residents (in effect from 6/4/15) are being increasingly cited by purchasers at the top end of the market and it will take time for these to be reflected in price movements before volumes increase. Therefore it is likely that prime London transactions will be significantly reduced over this year’s first two quarters.
Despite the reduction in the volume of market transactions, prices, according to the most recent information published by the Land Registry, show an average increase of 13% in London between February 2014 and February 2015.
The average increase masks varying increases across the London boroughs which have ranged from 7.8% to 18.7% over the year to February 2015 recorded by the Land Registry.
Despite the decrease in activity, buyer sentiment remains broadly positive. A vital component to continued activity and price growth is buyer expectations. The Halifax price optimism index increased to 60 in March (it was 20 in 2012) showing that expectations are sufficiently conducive to prices rising. The Bank of England has reported that there were 61,760 mortgages approves for house purchases in February, the highest level in six months. This is additional evidence to support a growing market ahead. Post-election we should see activity swiftly resume, providing clear policies are formed by the new government.
Rental values are reported to have increased slowly in central London over the last few months according to the main residential indices. Frank Harris & Co’s group’s figures for the last financial year show that the number looking to rent a property is 12% higher than the year before with those looking to let out their property increasing by 8%, suggesting a slight upward pressure on rents. Uncertainty in the sales market has prompted more to rent than buy of late as prospective purchasers hold off until after the election. However, post-election the sales market could strengthen negating this boost to rental demand. Fundamentally however, it is London’s strong and stable economic conditions which is why rental prices are increasing.