Rob Hill, MBA director at Greater London Properties, considers why all the speculation, government upheaval and uncertainty has lead to a surge in buyers switching to becoming rental applicants.
There have been many miles of column-inches dedicated to house prices since the Brexit result. Some senstantionalist articles about properties that previously were asking £1,000,000 dropping to £900,000 and talk of a crisis. One thing that does seem to be lost on a number of journalists is that asking prices often do not reflect the real market value; the property was never worth that price in the first place.
The original asking price is part of a frustrating common theme of agents over-valuating to win instructions with the hope of getting the vendor to chip the price during a long sole agency. The majority of vendors are rightly or wrongly delighted with the valuation and whole-heartedly agree since he/she is already convinced due to an online valuation they undertook pitched their property high, as well as a neighbour down the road putting their property on for similar. In addition, London’s media discussing the crazy London housing prices fuels this.
It’s far too early to comment on the impact of Brexit on London property prices, as there are so many factors that could either drive down or increase them in certain sectors. The market of properties valued in excess of £2,000,0000 is not as active, but in prime Central London this is not due to Brexit – it’s been happening for some time. The increase in available stock and the limited pool of applicants who can afford this, coupled with the 3% stamp duty surcharge, are the drivers of this.
One thing that we can report is an increase in, to coin a term, “Brental”. All this speculation, government upheaval and uncertainty has lead to a surge in buyers switching to becoming rental applicants. Why not rent and see if prices fall? Since the announcement of the stamp duty changes in the autumn statement we can report a 54% increase in applicants with a rental budget of £1000 per week and above. This, to me, in some cases make sense.
If you were considering buying a £2,000,000 flat in Central London as a first time buyer you would pay £153,750 or 7.7% of the property value, this rises to £213,750 or 10.7% if you already own a property. The more expensive the property the more costly the stamp duty and in particular for second home owners. If you need to sell in a couple of years and have paid 10.7% in stamp duty would you even break even? It’s certainly a question that is worth asking – renting a property for even £100,000 per annum could well make sense.
Brexit has heightened the sitting-on-hands approach and not making a firm commitment – after all, if you rent a flat it’s a temporary agreement that in most cases you can break after only six months.
Granted, July is the start of silly season in Central London for letting agents and it’s normal to see an increase in applicants registering, but we are hearing from a number of buyers that they plan to rent now for a year or two to see if there is a price correction.
Now is the time to become a landlord it seems!