Newsletter | April 2010 | Same again

Glass half full or half empty? What now for the housing market? Two contrasting views on the future for the market. Raise a glass here.

Is your glass half full or half empty? Two rather different views of the market.

"Where is this double dip?" asks Dan Wiggin.

The papers seem to be convinced of a hung parliament. This has had an adverse affect on investors within Central London. Hung parliaments tend to lead to indecision and inactivity. There seems to be a train of thought with investors that the value of sterling might be affected substantially if this were to be the case after the election. On the other hand if there is a convincing Conservative victory, confidence would then be restored to the financial markets and interest in purchasing will return.

The Chancellor, in his wisdom, has decided to increase Stamp Duty on all properties costing more than £1,000,000 from April next year. Although on the face of it, this 1% increase will be less of a burden for those who are purchasing at higher levels, it will undoubtedly deter people from moving whose budgets are nearer the cap.

With sterling set to stay low for the foreseeable future, which will in turn continue to help to attract foreign investors, supply might well be curtailed again, prices then rise and ‘Bob’s your uncle’, the market takes off again. 

It seems to me that the market here wins both ways. We have thrived on European investment in the last 12 months due to the weakness of sterling and there is certainly a following for this continuing after the election should parliament be hung. It is traditional for the months of January, February and March to be slower but there is an air out there of ‘wait and see’, before people put their best foot forward. 

A Conservative majority will bring with it necessary and significant cuts in public expenditure but will do much to restore an investors’ confidence in the economy. We are not of the opinion that bank rates will rise sharply in the next 18 months and in any case, fluctuating currency rates tend to be of more importance to investor's in this particular sector of the market. We will see what happens but at any rate, this present inactivity will, in my view, soon be over and the market will regain its buoyancy. We look forward to a healthy Spring market all round.

"You fear a double dip? Perhaps you should get ready for 'L' shaped" says Henry Pryor.

Isn't it possible that instead of comparing house prices and transaction volumes to what they were in 2007/8 (see the Month in Numbers) that this is in fact the new norm? Perhaps we should resign ourselves to the fact that only 800,000 homes will sell. That a third of Estate Agents will close down, that mortgage brokers and others who make a living when people move home, have some serious challenges ahead. The cost of actually buying a new property now provides a brake on people's desire to move house. As the Month in Numbers confirms, the average asking price in K & C is now close to £1m. At that level, £50,000 on Stamp Duty Land Tax plus legals, removals and other fees would go a long way to converting the attic or digging out the basement. It is a really powerful argument to stay put particularly if you are no longer making a profit when you sell.

But that is potentially the good news. Yields on residential property in prime Central London are now as low as 3% or 4% in places and I cannot see rents rising fast from here. Unlike those who buy a home who can borrow to afford a new property, tenants don't put the rent on their credit card. If rents can't rise much further, the only way that investors can improve the return they get is to pay less in the first place.

But don't just take my word for it. If you want proof that even the banks think house prices are on the way down, why not just stop and ask yourself why, at a time of supposed high demand, when all you can hear is the whine of property punters saying how difficult it is for buyers to borrow money. Ask yourself why lenders require such crippling deposits these days. 20-25% is not unusual. It is not because they have a moral concern that people might over-extend themselves. It is because they don't mind you loosing your deposit when prices fall, they just don't want to loose any of theirs! Remember, most of them have only just been bailed out.

I too look forward to a healthy Spring market but I fear that it will be Spring 2011 or even 2012 before we get to witness it.