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January 2020 | Market

Peter Izard: The outlook for London property

Peter Izard is business development manager at Investec Private Bank

There’s reason to believe that 2020 could prove a turning point for the prime London property market.

Research from Savills suggests that in the five and-a-bit years between June 2014 and September 2019, property prices dropped by more than 20%. However, it forecasts prices to grow by over 20% in the next five years – even amidst the current political uncertainty.

Property website Zoopla, says that property values in London rose by 1% in the 12 months up to the end of October 2019, which is the strongest pace of growth for two years.

So, what is causing this bounce back and what gives London such long-term appeal?

A recent report by property private office RFR property private office, claimed that a “wall of money was ready to cascade into London”, stimulated by the latest Global Power City Index, which named London as the most powerful city in the world for the eighth year running.

The annual index ranked London highly for economy, research and development, accessibility, business environment, diversity and tourist attractiveness, and London significantly outperformed the rest of the world for cultural interaction.

This reflects the demand we continue to see at Investec Private Bank from high net worth (HNW) individuals who want to live and invest in London.

UK property, particularly property in London has long been a top destination for international high net worth clients who are drawn to the education system, good international connections and respected legal system as well as the prospect of long-term asset appreciation.

According to Molior, a company that monitors property developments in London, 5,156 new homes in the capital were sold in the third quarter of 2019.

This was the highest figure in a year and a half, with about a fifth selling to overseas purchasers.

A weak pound has also benefited the London market, making investment in UK property a far more attractive prospect for those remunerated in foreign currency as the swing in the value of sterling alone has presented buyers with significant discounts.

Rental prices are also expected to rise in the prime London market, and Savills says that tight supply will support rental growth of nearly 19% in London compared to just over 15% in the rest of the UK over the next five years.

This positive sentiment is echoed by the London Super Prime Lettings Insight from Knight Frank, which says that there were 153 super prime tenancies agreed in the year to June – the highest annual total over the past seven years.

Knight Frank says that high-end rental properties in London are particularly popular amongst US tenants whose spending power has increased as a result of the weak pound.

There are plenty of reasons to believe, therefore, that the outlook for the London prime property market is positive and this is good news for brokers actively involved in this market or who work with HNW individuals and expat investors.

At Investec Private Bank, we are currently seeing a rise in prime London purchase business as buyers return to the market seeking value.

REMORTGAGE DEMAND

There is also continued demand for remortgages in this area of the market as large loan sizes make borrowers hypersensitive to rate movements, and investors recognise opportunities to release equity from their property.

With historically low interest rates and the highly competitive lending landscape, we expect this appetite to continue into 2020.

It is, however, worth sounding a note of caution. While the outlook is certainly very positive, we must remember that 2020 is still likely to be a transition period as the market adjusts to the political and economic environment.

So, we are unlikely to see any spectacular growth in the next 12 months alone.

Savills forecasts price rises of 3% in Prime Central London in 2020, but the longer-term outlook is more bullish and so it could be that the London property market is returning to its place of power.