As the summer sporting season begins and temperatures rise, our office is gearing up for one of our busiest months. In July last year, over £200 million worth of property changed hands in our area of prime central London, with signs suggesting this year will be no different.
Within our market, sales and achieved prices continue to rise, particularly in the competitive sub £5 million market. However, potential buyers are well informed and are unwilling to overpay for properties. Over-valuing by agents is increasingly common within our market, something Crayson do not advocate. Potential vendors must ensure that they launch their properties onto the market at the right price, to attract early interest and increase the chance of achieving the best value.
The International Monetary Fund (IMF) has admitted that it underestimated the strength of the UK economic recovery, confirming its positive outlook. However, they have expressed concern that the housing market, in its current state, could be a threat to ongoing economic recovery, thoughts which have been echoed by the Bank of England. Both have criticised unnecessary constraints on new development, as well as the increase in low deposit mortgages.
‘The disconnect between vendor and purchaser expectations on price has increased, often buoyed by agents over-valuing to secure instructions.’
The property press continue to report conflicting stories on the fortunes of the housing market. On one hand, house price growth figures suggest a rapidly rising market, yet on the other, talk of a boom and bust cycle, particularly in London, rumbles on. This disparity is creating issues and is widening the gap between vendors’ and purchasers’ expectations on price.
Despite mixed messages on the health of the housing market, demand for property in our area remains strong. Over the last three months the number of properties sold in our area increased by 17% over the same period a year ago.
Sales of apartments have dominated the market so far this year, with the number sold rising 32% compared with the figure at this point a year ago. The opposite is true for houses, with sales so far this year down 21%. Flats have also outperformed houses in terms of price growth. Flats sold in our area over the last three months achieved prices per square foot that were 13.6% higher than the same period in 2013. Houses saw average prices increase at a still respectable 10.6%.
Outside prime central London, the surrounding boroughs have continued to post significant growth. The outperformance of boroughs such as Hammersmith and Fulham, Wandsworth and Lambeth has meant the significant premium for homes in Kensington & Chelsea has been eroded. Prices in Kensington & Chelsea were 196% higher than those in Lambeth in mid-2012. In April 2014, this had fallen to 166%.
Buying in prime London
The amount spent on property in prime central London has risen significantly this year. Buyers have spent an average of £157.5 million per month in our area, 27% higher than at the same point a year ago.
Aside from the ongoing scarcity of stock within our market, there is relative parity between the proportion of properties sold (by type) and those currently on the market. Whilst not dramatically different, the market for flats with two or fewer bedrooms is the most undersupplied, accounting for 60% of sales so far this year, but just 53% of properties currently on the market. Buyers looking for houses or larger flats have more choice, with these properties making up almost half (47%) of available stock.
As we reported in our previous Market Intelligence Report, the strongest growth in values continues to be for homes at the lower end of the market (under £1 million) and those priced between £2 million and £5 million, with average values within these price bands having risen by 12.7% and 12.9% respectively. Prices per square foot for homes selling in excess of £5 million have plateaued this year. However, they are still achieving values which are 28% higher than they were three years ago.
So far this year, larger properties over 5,000 square foot have accounted for 3% of transactions in our area. However, the total value of homes sold (over 5,000 square foot) exceeded £138 million, 22% of total sales by value, up from 12% in 2013.
Achieving the best price for your home
As spring turns to summer, the market in our area of prime London remains relatively buoyant. Despite the strong market conditions and vendors continuing to benefit from the number of potential buyers outpacing new instructions, it is vital that both vendors and agents are realistic about the value their properties can achieve. As competition for new instructions has intensified, some agents are over-valuing in a bid to secure instructions; a practice that is not recommended.
Put simply, vendors who achieve the best price for their property do so by bringing their home to market at the right price, creating early interest amongst buyers. Properties that are launched at an unrealistically high price are missing out on crucial selling opportunities in the early stages of marketing. The average amount of time before a property is first reduced is currently 70 days.
Unrealistic expectations of values alongside competition for new instructions means properties are still reaching the market at values that are not attracting buyers.
Within the Royal Borough, 24% of properties currently on the market have been reduced in price since they were first marketed. The highest proportion of price reductions is seen in the price bracket over £10 million (31% now reduced); this compares with just 21% of properties priced at £2 – 5 million.
Twenty-five per cent of the most prolific agents within our area (with more than five properties listed for sale) have reduced the prices of more than a third of their available stock. Comparing properties sold this year at different price bands shows that the market of over £5 million saw the highest levels of price reductions, with 36% of properties having their asking price reduced before finding a buyer. This compares to just 15% of properties over £5 million sold in 2013. For properties under £5 million, 22% had seen their asking prices reduced before finding a buyer.
Base rates have remained at a record low of 0.5% for over five years. Despite the UK economy continuing to improve, the Bank of England has said it is in no rush to increase rates. The Governor, Mark Carney has suggested the UK economy is edging closer to the point where rate rises would be needed. However, most analysts still expect that rates will not begin to rise until the first half of 2015.
In April, recommendations made in the Mortgage Market Review (MMR) were implemented and there has been much speculation about what the impact will be on the housing market. New assessment criteria, which has actually been slowly introduced since the early part of the year, means that mortgage lenders will now look at a borrower’s ability to continue to meet their mortgage payments if rates rise. In conjunction with the new MMR guidelines, Lloyds Banking Group have also announced that for loans of over £500,000, they will now apply an income multiple limit of four.
The new rules do appear to be impacting the number of mortgage approvals nationally. Figures from the Bank of England suggest mortgage approvals have fallen for three consecutive months since January.
It is likely that the new lending rules will have less of an impact in prime areas of London, where high loan to value mortgages remain scarce. Indeed, Kensington & Chelsea remains one of the least mortgage reliant areas of the country. The value of outstanding £200 mortgages within our area totals £3.68 billion, just 1.6% of the total for Greater London.
The most recent European Parliamentary elections saw a significant rise in seats for Eurosceptic and far-right parties. This was evident in the UK and in many of the larger mainland European countries.
A recent review of UK economic policy has angered many MPs, with Europe urging the UK government to re-assess taxation of the housing market. The European Commission has suggested the government implement higher taxes on high value homes, increase house building, re-assess Help to Buy and implement a comprehensive council tax revaluation.
Help to Buy continues to take a bashing from Europe and the opposition parties. However, the latest figures show that London, where prices are rising most rapidly, accounted for 13% of all loans for house purchases since March 2013 but just 6% of Help to Buy transactions. Despite the upper price threshold for Help to Buy of £600,000, there have been no Help to Buy equity loans completed in Kensington & Chelsea or Westminster since the scheme was launched 13 months ago.
The European Commission and many of the parties vying for the top spot at next year’s general election advocate further taxation on high value properties. However, changes to stamp duty in recent years are already yielding significant amounts for the government’s coffers.
In our area of prime London, growth in values, rising transaction levels and the implementation of higher stamp duty land tax on homes sold for over £1 million, and subsequently £2 million have increased stamp duty receipts significantly.
So far this year, buyers in the Crayson market area have spent an average of £9.77 million per month on stamp duty. This compares with just £2.9 million per month five years ago. Sales over £2 million, which in 2009 made up 56% of stamp duty collected, now account for 77% of the total.