London, though synonymous with nightlife, shopping and as the financial powerhouse of England, has also been known for something else – higher than average property prices!
As part of my master’s thesis in Law & Business, I have endeavoured to obtain a deeper understanding of the effect on the legal sector stemming from both the pandemic and the changing political landscape sweeping across the country.
Historically the ever-increasing value of property in this relatively small city has made purchasing/owning property a ‘safe bet’. Homeowners have found the value of their property increasing steadily and more importantly faster than the rate of inflation, therefore profitable to both local and international purchasers.
One of the driving factors in the increase in the value of the property prices was due to and as a result of heavy demand. A demand which, as a direct result of the global pandemic, has seen a steep decline. For the first time in more than 30 years, London’s population is falling.
What does this mean for new buyers and those taking the first steps into the property market? In the short-term, purchasers, both international and national, have been investing heavily in new purchases. A large part as result of the Stamp Duty Tax holiday currently available until 31 March 2021. With no definitive answer from parliament on whether the tax holiday is to be extended, even the most modest projections show a sharp decline in new home purchases expected in April 2021.
The issue that new homeowners may soon have to face stems from basic economics, should the demand for housing in London decrease the subsequent rent/resale profitability of homes around London is sure to decrease.
According to research conducted by the Financial Times using figures published by rental giants Zoopla & Rightmove, the City of London in the last 14 months has seen its rents drop by 15% in certain boroughs at its highest and 3% at its lowest.
With post-Brexit laws on immigration making it more difficult for lower skilled labour from parts of Europe to easily enter the country it can be assumed that the decrease in both the value of purchasing property and the lower rates of rent will continue post-pandemic due simply to the lack of demand.
The blessing, if it can be called that, lies not in the short term but the long-term. I have read that most economists note that London prices are not actually ‘dropping’ but are finally starting to level out with other major cities in England. This presents a new opportunity in making London property something it has not been for a long time, affordable. Having spoken to other members in the Residential Real Estate team and our property professional network, it is a shared view that the property prices are ‘normalising’.
The property market in itself is cyclical in nature and rests almost entirely on the economic health of the nation. London is often used as the yardstick by which to judge the financial health of England due to the sheer amount of money that is circulated through the city. As and when prices are at their lowest, opportunities will undoubtedly arise for those who could not purchase in London to finally be able to do so. The younger generation and those with lower capital will have both opportunity and luck on their side to buy in a market, which has for the last 10 years been unaffordable to most living outside of the capital. As with all things, the trickledown effect of increased spending should lead to increased demand.
My team members and I would be happy to answer any queries from prospective buyers and sellers. The team are still (subject to certain items being in place) able to assist on transactions which need to complete before the tax holiday deadline on 31 March.