Transaction Numbers Increase
Across our markets more sales were agreed in the first half of 2022 than at any time since 2014 – and that includes the busy run-up to the deadline for the stamp duty holiday in June 2021. Our experience was reinforced by data from TwentyCi which reported that sales agreed in Inner London in Q1 2022 were higher than the pre Covid Q1 2019 by 37.5%. In consequence, there was a gentle uplift in values, adding another 2% to the average price and a little more (3%) to a 2 bed apartment in City or Midtown.
The price rises we reported in 2021 have been consolidated in 2022. Nevertheless, the cost of a home in our markets remains at the level they had reached 8 years ago, in 2014. That simple fact is a key driver in the market today – buying a home in our markets is within reach for more people, while the cost of renting has risen in comparison. That combination has also caught the attention of investors.
The London suburbs and wider South East have experienced double digit price growth for two consecutive years with agents regularly reporting sales at above asking prices. This is not the case in Central London. The contrast makes our markets look, for many, like a good buying opportunity.
We have seen an increase in demand for one bedroom apartments. City prices edged above Midtown in 2021 and that order has been sustained into 2022. The cost of one bedroom apartments has been underwritten by demand from first time buyers alongside pied-a-terre purchasers and investors.
Most of the demand is coming from domestic buyers. Overseas investors have been slow to return to the market. We expect more to return over the next year, spurred on by economic and political uncertainty in many parts of the world. London has long been considered a safe haven for capital because of its benign and relatively stable political and economic environment maintained over many years.
Some £10,000 was added to the value of a one bedroom apartment in our markets by the middle of 2022, taking the average value to £475,000, though still significantly below its peak at £555,000 in 2016.
There has been moderate price growth across all our markets this year but the strongest uplift has been for 2 bed apartments. The return of price growth to our markets was initially led by larger (3 bed) properties where prices rose in 2020 and 2021 but have since remained stable this year. Only recently, in 2022, have we seen a return to price growth for smaller apartments.
During the pandemic, many people sold homes and left London. Those who stayed, often wanted to exchange their apartment for a freehold house with outside space. This shift in preferences kick-started the price growth in 2020 and 2021.
Looking across different locations, East London recovered faster than Midtown and City with increases for all property sizes in 2021 but here too, the 3 bed properties climbed steeply last year and have flattened this year.
Apartments are the dominant property type across all of our markets. In the recent past however, the relative popularity of houses versus apartments has been skewed by several unusual and unforeseen circumstances. The pandemic led people to re-evaluate their lifestyles. Extra space, including outside space, became a priority. The realisation that hybrid working is not a temporary phenomenon has consolidated the need for additional internal space. At the same time, fire safety issues have rendered many of the apartments built in the last 30 years un-mortgageable, and/or prohibitively expensive as maintenance and retrofitting costs have been added to annual service charges. That has deterred buy to let investors and excluded many other buyers. The appeal of the house as a property type has been driven by a perfect storm of push and pull factors.
Anyone who has owned property in our markets for 20 years or more will have accumulated substantial capital gains. For those who became homeowners around the turn of the millennium, the value of their property will have doubled. Prices have grown five-fold since we first began monitoring these markets in 1994. Many people from that generation are now considering equity release to free up some of their accumulated housing market wealth and pass it on to the next generation. A record £4.8 billion was withdrawn in equity release in 2021 and it has become a key driver in the UK housing market.
Equity release enables buyers to apply for low loan to value mortgages and secure some of the most competitive interest rates available. Parents who gift money to relatives can reduce the Inheritance Tax liability for their beneficiaries and also experience the pleasure of seeing their money put to use.
Homeowners who haven’t seen significant price gains are less motivated to sell with the taxes potentially incurred on the way in (purchase) and the way out (sale) adding further reluctance to do so.
Despite advances in technology, delays with solicitors and managing agents processing sales this year (under the strain of increased sales volumes and compliance checks) have pushed the average time taken to exchange a leasehold flat from 6 – 8 weeks 30 years ago to 12-16 weeks in 2022. This inevitably leads to greater stress levels for buyers and sellers at a time when both inflation and interest rates are rising.