If you have had your head buried in the sand of late you may not know that the London housing market is very stagnant on the whole.
I write about London because that’s the market I know, but my thoughts may well resonate in other markets.
According to Halifax, house prices are falling at the fastest rate in nine years.
In the past I have taken such reports with a pinch of salt. They tend to focus on the worst hit locations around the UK, dramatise and apply the shock headline to everywhere.
London itself has always had its own market and on the whole it has been a resilient one since I started in this game over 15 years ago.
I have seen the cycles and I have been fortunate enough to experience a very buoyant, fast-paced east London market. However, this time is different.
My experience as a sales director meant I got to experience a number of different locations, overseeing six offices in the City fringes.
Better yet, I recently tasted the online/hybrid world which, for many of its faults (and that is a whole other story altogether) allowed me to oversee the whole of east London and west Essex just as the market turned.
What interested me was the fact that the suburbs were out-performing the more central locations, a complete turnaround from just a few years ago. Back in 2011, Hackney prices were nearly doubling in the space of a year or two whilst the burbs … well, burbled along.
Two years ago it all changed, and yes, Brexit had a lot to do with that. The first hit will always be the more central locations. The Bloomsbury and Clerkenwell offices I was overseeing at the time were hit hardest. Those markets are dominated by buyers that simply have no need to rush into a sale.
It’s fuelled by a want and by investment rather than a need. The same goes for the sellers. They don’t need to sell and won’t drop prices to do so. As you go further out, however, you then factor the need to move, such as schools and growing families.
Flash forward two years and this trend has continued and magnified. Only now the number of house sales has dropped significantly, even in the suburbs.
Darn Brexit are the cries as I visit prospective sellers. Only I have never heard of a couple looking to start a family not wanting to upsize because of Brexit.
The fact is this. There are a number of changes introduced by the Government, all of which have stifled the London market.
Prime central and City fringes have definitely felt the impact of the Stamp Duty changes for investors and the fact they can no longer offset their mortgage interest fully when paying capital gains tax. Brexit has meant a loss of confidence in the same market and nothing is worse than an uncertain one.
But let’s focus on the suburbs itself. Yes, all of that central London negativity and lack of investors will impact the suburbs slightly, but there is one major factor I think most people have overlooked: Help to Buy.
Help to Buy
If you were to Google “Help to Buy pros and cons” you will get a whole list of why you should/shouldn’t consider it (again I could write for days on that one).
But you will be hard pushed to find what I am about to tell you. This is my theory on why the London market as a whole is so much tougher now.
Most agents will tell you that the cheaper stock is selling while the big houses are sticking. That is complete rubbish in my opinion.
In fact is that whilst working in the suburbs I had no problem finding buyers for houses from £750,000 to even £1.75m. A house I had in Snaresbrook at the latter price had more viewings (and offers) on it than some of my £350k flats. One of those offers came from a family selling their house in Wanstead through me at £950k.
That property had so much interest I had to beat them away. The problem came as we went further down the chain. Selling a one-bedroom two-year-old apartment at £350k close to Victoria Park in east London should be bread and butter stuff, especially since it had little to no growth since purchased off-plan, and yet I struggled to get a viewing, let alone offer. This was a common theme. So how can this be?
What props up any market?
Answer: first-time buyers. So where are all these people?
Well, ask yourself this. Why would you buy a two-year-old apartment, generous sized ex-local authority flat or period conversion (once so popular) with a slightly older kitchen and tired bathroom when you can put 5% down on a brand new apartment and get a 20% interest-free top-up loan from the Government?
It’s not that these new-builds are people’s first choice, far from it, but with that kind of incentive when deposits are so hard to come by, it’s seen as a no-brainer.
So the Government has succeeded in its vision to help first-time buyers get on the ladder and at the same time encourage more housing development. Job done, right?
Well. yes and no.
Historically, government intervention in the housing market seems to fix one problem but create another. Or maybe this is intentional.
After all, house prices are dropping, making everything more affordable. Maybe this time they have it spot on. It seems no matter how much a resale property gets reduced, the lack of activity doesn’t change. When there are no buyers at the bottom of the chain, there are no buyers.
Most agents are just scratching their heads – unless you are in the New Homes game.
If you are lucky enough to be selling a scheme with Help to Buy you will know a very different story. Just recently a scheme in Hackney Wick with around 44 new apartments sold within a week. That’s where all those darn people are!
Put aside the negative impact on the rest of the market for a second, we’ve had a good run guys, let the youth of today have their moment.
However, my fear is this. What happens when these new-builds are no longer new and the subsequent buyers can’t take advantage of Help to Buy?
In two years’ time, what happens when you want to sell your flat and pay off that government loan but you now have no buyers either?
Couple that with the fact you have probably over-paid for your spanking new apartment in the first place.
You see, developers have cottoned on to the fact that these Help to Buy flats are selling like hot cakes and just inflating the prices.
What is going to happen if after Brexit this uncertainty continues, house prices continue to tumble and you are sitting on a government loan that you will, at some point (five years down the line) need to pay interest on?
Just ask the people that took advantage of the scheme five years ago.
This could all end with a bang, or more pertinently with this side bubble the Government has created, a pop!
* Nick Karamanlis is a branch partner at Butler & Stag