THE RICH may be different, but that does not make them immune to a downturn in
the UK property market. “Anyone who thinks the current credit crunch is
going to have no effect has their head in the sand,” says Charlie
Ellingworth, of Property Vision.
Savills reports that weaker financial markets are already leading to a cooling
of the performance of prime Central London property, with growth levels
under pressure for the first time since 2005.
This sector of the market is not insignificant. While the vast majority of UK
property bought and sold is valued at less than £300,000, the number of £1
million-plus sales has risen threefold over the past five years, with more
than 6,100 such properties sold in the year to June 2007.
Not all prime properties are vulnerable. “Rare products will continue to hold
their own,” says Jonathan Hewlett, of Savills’ Sloane Street branch, but he
reports a change in temperament in the market. Buyers are a good deal more
cautious, and sellers have to adopt a less bullish approach. “A sense of
reality has been brought back to the market,” says Jeremy Lambourne, of
Oakhall Property Source.
£1 million to £5 million
If the downturn in the property market is to be felt anywhere in the prime
market, it is at this level. “Buyers and sellers in this bracket are not
invulnerable to market sentiment,” says Ed Mead, of Douglas &
Gordon. Most vulnerable of all are properties in “investment banking
country”, Ellingworth says. Houses in Kensington, Chelsea and Notting Hill
Gate, as well as medium-sized flats in places such as Docklands are likely
to see prices soften. “ There is talk of falling bonuses and
staff cuts in the City, and agents are already seeing buyers beating a
retreat. “There have been some incidences where buyers employed in the City
have withdrawn from the market,” says Lucian Cook, of Savills. In spite of
revising its prime London forecast downwards, Savills remains upbeat,
expecting prices to grow by 18 per cent, rather than by 22 per cent.
But fears of a downturn in prices at this level have not been dismissed.
“Should the reduced confidence become deeper-rooted and redundancies more
widespread, we would anticipate that there is a possibility of price falls
in the final quarter and much lower growth next year,” Cook says.
£5 million to £10 million
This sector is holding the market, Johnson says: “This is the entry level for
overseas purchasers, particularly from the Middle East, India and the Far
East. Although this is a level for the super-rich, they are careful to
invest their money wisely, and are very property-savvy.”
There are variations within this market. Ellingworth points out that family
houses, which rose by 74 per cent between December 2005 and June 2007, are
likely to perform less well than flats, where prices rose by 39 per cent in
the same period. It is not simply a question of flats having seen slower
price growth, but because demand for houses is more likely to be local.
“Buyers for large flats in pricey areas are likely to be the international
rich,” Ellingworth says, who adds that pet-ro-dollar buyers are dominant in
this market.
£10 million to £30 million
Despite the increase in properties in this bracket in recent years, they
remain in short supply. Peter Wetherell, of Wetherell’s, says: “Above £10
million, there is still a great deal of cash in the system chasing fewer
properties. We might even possibly see the greatest growth in this price
range.” Lucy Russell, of Quintessentially Estates, says that there is still
significant demand for country estates in this price range. “There is no
sign of prices dropping at the high end because these estates are in short
supply. We have two clients looking around Gloucestershire in the £10
million-plus category, and the majority of the properties available at that
level are off the books,” she says.
£30 million plus
“There are incredibly few properties in this bracket; buyers are extremely
wealthy and confidence remains totally unchanged,” says Hewlett. “Properties
at the upper levels almost never reach the open market,” Michelin says.
“Buyers will engage property search agents directly to approach owners, and
for this reason, traditional economic factors of supply and demand don’t
apply.”
However, Ellingworth points out, not even the richest buyers like to be seen
buying at the top of the market. “Very quickly an asking price of £4,000 per
square foot can become a sale of £2,000 per square foot,” he says. “The
froth of a bull market can be thick, and vulnerable to an ill wind.”
In a jittery market those at the bottom are the vulnerable ones, says Susan
Emmett
FEARS for the future of the property market deepen as buyers stay away after
the Northern Rock crisis. Estate agents report that more deals are falling
through and fewer buyers are viewing properties. Uncertainty is forcing
nervous sellers to lower their asking prices. But agents insist that
underlying values are holding firm and that a crash is unlikely.
Although the housing market had been cooling for some months before the recent
turmoil, the banking fiasco has dented confidence in the property market.
George Franks, of Douglas & Gordon, says that many buyers have seized the
opportunity to make lower offers. “There is a definite perception of the
market coming down. Some nervous sellers have accepted but there are those
who are holding firm.”
Max Ziff, of Humberts, says: “The fact that there has been a run on a major
institution is in itself reason for the market to take fright, but people’s
memories are short and this spectre will recede into the background. The
real issue is the reason why Northern Rock happened in the first place.” The
queues of savers may have disappeared, but the credit crunch is still an
issue. Banks may find it harder to raise money as easily as they have been
doing in recent years. This could mean the end of rock-bottom mortgage deals
and easy credit. Agents fear that parts of the market that are more reliant
on buyers being able to obtain loans will be harder hit.
How’s the bottom of the market doing?
Fewer first-time buyers than ever are stepping on to the property ladder
unaided. Many enter the market armed with large deposits obtained from
parents or other family members or buy with friends. However, those banking
on securing a 100 per cent mortgage will suffer. Big loans are still
available, but they have become dearer and banks are applying more stringent
lending criteria.
According to Jonathan Cornell, of Hamptons International Mortgages, borrowers
with a good credit record should still be able to secure big mortgages. “We
have not seen any mainstream lenders changing their income multiples or
affordability calculations,” he says. But borrowers with a less rosy credit
history will be affected. Robert Bryant-Pearson, of Allied Surveyors, says:
“Buyers of local authority housing, where people have remortgaged, will have
difficulty in remortgaging again to pay credit card debts when trying to
trade up their home.”
What are buy-to-let investors going to do?
Opinions are divided over how investors will react. There are fears that
landlords could trigger a market slump by panic-selling ahead of any
possible price falls. Many are suffering from lower yields and have been
unable to put up rents to cover higher mortgage costs.
But a subdued property market will always boost rentals. Nigel Terrington, of
Paragon, a specialist mortgage lender, believes that landlords who have kept
their levels of borrowing low will ride out the storm.
And the middle market?
The consensus is that the bulk of the property market, supported by a strong
economy, will slow rather than slump. Warren Bright, of propertyfinder.com,
says: “There is an annual shortage of 350,000 family homes on the market,
and a quarter of buyers are forced to buy a smaller home than they are
looking for. As a result, three and four-bedroom homes will retain their
value best.” Bright also said that the market will be helped by the fact
that an interest rate cut is now on the cards and fixed rate mortgage deals
are already falling.
For the latest facts and figures on the property market, go to: timesonline.co.uk/property
