The Stamp Duty and BREXIT issues that have beset the UK housing market for the last 3 years feel like a walk in the park (no pun intended) when compared to the current economic paralysis.
2020 felt like a new start, a chance to reset the clock and move forward with confidence. Boris was in No. 10, we were entering the negotiation phase of the withdrawal from Europe and people knew the direction that the country was now taking. Prime London values had risen 2% by the end of February, according to Savills; the first positive growth since 2015. At the same time Mortgage approvals were at a 6-year high and we were selling properties faster than we could take them on; a breath of fresh air was sweeping through the residential market.
That wasn’t to say 2020 was going to be straightforward. We still had the EU exit negotiations to contend with. It was always expected that these would generate enormous volatility within both the markets and the investor psyche as the ramifications of each negotiation round was digested and acted upon. However, the key was that the country had an overall direction on the question of European membership and the Prime London housing market was reacting very positively to it.
Within my own network of independent agents, we were at the forefront of this renewed optimism, agreeing 15 sales over January and February including multiple sealed bids situations on the back of the ‘Boris Bounce’. By March, three of these had fallen through owing to fears about the lock-down and the on-going economic impact. A further couple subsequently fell by the wayside in April with buyers going for the last minute 30% price chip and subsequently having the contract withdrawn from them. However, there still remains a good net figure of deals on the table and several that have subsequently exchanged and completed. The real issue with progressing the remaining deals has more to do with the practicalities of access to the properties, the ability to still conduct local authority searches and having solicitors who still have the operating capacity to deal with the business. These sales still remain live with a strong willing to conclude the deals from both sides. This week alone, we have put together another sale with terms agreed and both parties pushing for a swift exchange of contracts. Last week, I completed on a sale, at which point the (HK) buyer immediately asked me to find him another similar property. Business is still there to be done but the obstacles will require considerably more work and patience to overcome.
Sun Tzu’s quote, ‘In the Midst of Chaos, there is Opportunity’could never ring truer at this time and none more so than for the foreign investor. With the £ reaching a low of $1.15 to the pound in mid-March, this created a significant currency opportunity not seen even during the post-referendum years. For the more risk-savvy investor, this pool of cash will be used to take advantage of immediate fire-sale opportunities, locking in at a significant discount. The more risk-averse investor will wait for the economic conditions to turn from red to amber and will then swoop, again acquiring assets at very favourable levels from those sellers whose pockets aren’t deep enough to ride this through. Hardest hit amongst these are likely to be the smaller developers unable to service the financing against newly acquired or newly completed sites. In the March budget, the Chancellor announced a 2% Stamp Duty surcharge on UK property being acquired by foreign buyers, coming into effect in April 2021. A timeframe such as this will further focus the mind of the foreign buyer and add impetus to getting transactions done prior to Q1/21.
Having witnessed such a surge of demand at the beginning of the year, it is perfectly reasonable to conclude that demand will return once the COVID issue dies down. The ideal scenario (if there is one) will be a short to mid-term lockdown with the potential for a ‘V’-shaped economic recovery allowing the London property market to continue its recovery. A longer lockdown with prolonged economic uncertainty is certainly a less palatable scenario and one in which significant government help in the form of lower SDLT rates will be required to give the market the adrenaline shot required to get it moving again.
