Market Update: Budget Edition
After all the excitement of the blog’s birthday celebrations and some time away with my family, this week it’s back to work.
So a little later than normal, it’s a market update. And lots to discuss too.
But before we get into it, here’s a little snapshot.
London is slowly coming back to life. According to TFL, almost 4 million people travelled on the Underground in the last week of September, compared with an average of 5.5 million people a week before Covid-19.
An Englishman’s home is still his castle. In the post pandemic world, home is the most important thing. Rightmove predicts that 1.5 million homes will have been sold across Great Britain by the end of this year – the highest number of transactions since 2007, 47% higher than in 2020 and 31% higher than in 2019
The great escape to the country continues, as does its effect on prices outside of London. The number of £1m+ homes outside of London grew by 95,500 in the 18 months to June 2021, while in London, they rose by less than a fifth of that figure.
Yesterday the Bank of England’s Monetary Policy committee voted seven to two in favour of keeping the base rate at its historic low of 0.1%.
However with inflation already exceeding the MPC’s 2% target, and expectations that it could rise as high as 5%, it seems likely that rates will increase over the next twelve months.
The market has seemingly already accounted for this, with four of Britain's biggest banks increasing the cost of its fixed rate loans for new borrowers, and Nationwide withdrawing its base rate tracker mortgages altogether.
It’s easy to forget that we’ve been living in a low borrowing cost environment for nearly thirteen years now, with interest rates not exceeding 1% since February 2009.
For the first time since I can remember, the Chancellor delivered a budget which largely ignored the property market. It’s about time too. Since 2009 Stamp Duty has been one of 11 Downing Street’s favourite economic levers.
In the decade to 2019, HMRC’s tax take from the property market increased from £4.89 billion to £12.91 billion.
Considering that the same time period has witnessed a global financial crisis, four general elections, a Brexit referendum and a pandemic, it’s not bad going.
It’s an interesting tool too
At the entry point to the market, SDLT has been used by successive governments to enable more new buyers to get on the housing ladder.
Since 2009, there have been six different measures to encourage this, through a combination of outright holidays and increasing the threshold at which the tax becomes payable.
At the other end of the market, the tax has steadily risen. In the last twelve years there have been three increases of the top rate payable, together with an additional 3% for second homes, and another 2% for overseas buyers.
In 2020 London’s high-end homebuyers paid 12% of all stamp duty owed nationally, despite accounting for just 0.1% of the market.
Although the MPC has been independent from the government since 1997, there is little doubt that low interest rates have created an environment where higher taxes have been more palatable.
Whilst transaction costs have increased, the cost of ownership has fallen dramatically.
London is back
But arguably, in a more transient way than before. The rental market has gone crazy.
According to Zoopla, demand for London rental properties in August was up almost 80% on the average for 2017-19.
Top end properties in Mayfair are going for as much as a third above the asking prices, and in some instances, wealthy overseas students are outbidding corporate tenants. Yes, you read that right. It’s a far cry from the Young Ones.
On the supply side, stock is down 68% and achieved rents have risen by 11.7%, the highest annual increase seen in a decade.
For context, just six months ago the market was recording annual falls in achieved rents of -19%.
On the sales side, buyers priorities have shown a shift too. In June this year proximity to a park was number one on the list of priorities, but by September the tube station had made a comeback.
I wonder though if this reflects a shift back to a pre-pandemic way of thinking, or simply that more buyers are now looking for a London pied-à-terre. As always, time (and the data) will tell.
Prime central London prices still remain good value in a historical context, at 19.8% below their 2014 peak.
Savills are expecting buyers to take advantage of this, and have predicted significant levels of price growth in 2022, at +8%
Given the amount of times I’ve seen the bottom of the market called, I really do hope that they’re correct!
Data from PrimeResi, Ennes Global Mortgages, Savills, Rightmove, Statista, Lonres and the FT
Things I’ve been inspired by this week
Becoming Warren Buffet is a fascinating insight in to a man who’s been described as a £96 billion dollar average Joe.
He’s lived in the same house since 1958, never spends more than $3.17 on breakfast and only employs 26 people at head Nebraska headquarters.
His rise to becoming one the wealthiest people in the world is a remarkable story of how to play the long game.