From Jo Eccles, Property Expert and Director of London property search company, Sourcing Property (www.sourcingproperty.co.uk):
Two tier system
We agree with Savills’ predicted two tier system where the top 10% of properties are expected to outperform the rest of the market. ‘Blue chip’ properties are still commanding peak prices and selling quickly. Whereas ‘second rate’ properties, (i.e. those with some flaw whether that be location, lower ground, a walk up etc) are taking much longer to sell.
Short leases
A lot of properties coming to the market have a short lease, which suggests that ‘old money’ home owners (i.e. where they have owned for a long time or inherited property) don’t have the cash funds or access to borrowing to extend the leases. Whilst mid term leases (approx 60 – 70 years) are traditionally common in areas such as Chelsea, Belgravia, Mayfair and Marylebone, we’ve encountered a number in areas such as Shepherds Bush and Clapham, which is quite unusual. Short leases provide a source of good quality properties for cash buyers not requiring a mortgage, as most lenders are refusing to lend on properties below 55 years. These buyers can then apply for a lease extension once they own the property.
Lack of supply expected to continue
We expect the lack of supply of good quality property to continue into 2011 as existing home owners take advantage of low interest rates and hold onto the property they own. With interest rates stable and widely expected to remain low throughout 2011, it’s difficult to see any major factor which could cause a flood of new property onto the market.
Emerging trend for properties to be ‘quietly’ marketed
A lot of properties are being marketed ‘quietly’, rather than on the open market, and we expect this discreet way of selling to continue. We would suggest an air of caution with ‘off market’ property, however, as in some cases, this is simply a way of estate agents creating an air of exclusivity, and a premium price, for a property when it’s not always warranted.
Buyers taking a longer term view and will continue to do so
We’ve noticed a shift in attitudes with our owner occupier clients, who are all taking a much longer term view on the property they’re buying. Three years ago, most of our buyers were expecting to be in the property they bought for approx 2-3 years, whereas most clients are now taking a 5-7 year view. We expect this longer term attitude to remain prevalent in our buyers’ decisions.
Inflation concerns
A lot of our city professional buyers, including bankers, have voiced concerns over inflation risk over the next few years, and as a result, many are keen to put their money into the housing market to protect the value of their cash, whether as a buy-to-let investment or a home to live in themselves.
Renting:
We’ve had a 40% increase in the number of rental clients compared to last year. The rental market in Q4 of this year (2010) has been more competitive than we’ve ever experienced since we were established nearly five years ago. We’ve even had one client go to sealed bids – previously this has been a phenomenon only seen in the sales market.
Increased demand has largely come from would-be buyers who are either priced out of the sales market or can’t get access to funding, and those struggling to find the right property to buy. This has been coupled with a reduction in supply. We’ve noticed a significant proportion of rental flats being put onto the sales market, where landlords are seeking to cash in on the buoyant sales market. This has reduced supply, coupled with the trend for existing tenants to stay put and renew their existing tenancy, rather than try to find a new property to rent.
We see the strong rental market continuing into 2011, with increasing numbers of people looking to rent, including families and older generations who simply can’t afford the next step up on the ladder. Current rental yields are approx 4% gross on average across London in all price ranges and we expect yields to rise in line with increasing rents.
Finance:
Over the past 12 months we’ve seen private banks becoming a dominant force in the prime residential mortgage market, targeting wealthy asset rich borrowers to establish long term asset-based relationships with them. They are offering very good lending rates to new and existing clients who meet their client criteria. We’ve noticed this with our own clients, of which approximately 75% buy with a mortgage. Those clients with relationships with their banks are getting finance much more easily and quickly than those who have shopped around and chosen a lender who they have no relationship with. In this market, it seems that being a private banking client does have significant benefits.
Going forward, we expect finance to still be in short supply versus previous market conditions, but borrowing will still be available to those with a cash deposit of 30% or more. However, certain types of property, such as those above food serving commercial premises, will be unobtainable to many buyers requiring a mortgage.
For further information call 020 7244 4485 or go to www.sourcingproperty.co.uk