CONVEYANCING TIME INCREASES
Sales volumes in our central London markets remained at the same level in 2023 as they had been in 2022 – despite reduced enquiry levels. Serious buyers were looking for ‘best in class’ homes that represented good value. With higher interest rates and wider economic and political uncertainty it is understandable that buyers should be cautious. Buyers who focused more on reasons not to buy, rather than take the step of buying a new home, lost out.
Sellers recognised the change in sentiment and responded positively with realistic pricing, often coupled with professionally staging their properties for sale. This led to successful sales across a range of different property types. Owners not able or willing to adapt in this way often decided not to list at all until conditions improve, to avoid crystallising a loss. Their choice ensured that supply remained broadly in balance with demand, thus protecting prices.
In general, freehold houses performed better than apartments. Higher interest rates seemed to have less impact in this part of the market, where buyers still continued to compete for a limited supply of houses suitable for long term family occupation. Also still in demand, were larger apartments with outside space, high ceilings, luxury bathrooms and kitchens and reasonable service charges.
The more difficult part of the market this year has been for entry-level one and two-bedroom apartments with one bathroom. Buyers at this level do have more choices and they often hope for substantial discounts – but that does not match the expectations of sellers who have already adjusted their asking price. In our experience, sales have been secured within 5% of asking price for a correctly priced property, with any buyer hoping to secure larger discounts being disappointed.
The price of a one bed apartment dipped over the year by an average of 5.3%, translating into a drop in value of £25,000 by the year end for an average one bed apartment priced at £445,000. The fall was steeper in East London than in City or Midtown – and that fall was from a lower starting point.
In East London, a typical one bed apartment lost 8% of its value in 2023, shaving £30,000 off the price, which ended the year at £360,000. This is the hunting ground for many first-time buyers who were forced to reconsider budgets as interest rates rose. The most resilient part of the market proved to be large apartments in the City which maintained their prices throughout 2023 with a greater number of cash buyers looking to take advantage of buying in an attractive market with prices stuck at 2013 levels and less competition.
The ‘doer-upper’ was less popular in 2023 as the cost of refurbishing an unmodernised property has spiralled under pressure from materials and labour. Best-in-class homes attracted far more interest and it showed in our records of viewings per listing. This frequently led to ‘best-bid’ situations.
The market has accepted interest rates of 5.25% as the ‘new normal’ but sentiment is being dented by other external factors including: war in Ukraine and the Middle East, the prospect of a UK general election and change of government during 2024 and a highly contested presidential election to come in the USA in November.
The length of time required to complete a sale transaction remains a big problem in the sales market. For leasehold properties, the conveyancing process from sale agreed to sale completed is now typically 4 to 6 months. Such an extended period causes frustration all round, especially when it means that a mortgage offer expires.
Solicitors place the blame on managing agents, search providers and lenders (for their ever-lengthening list of criteria particularly relating to The Building Safety Act), but even when there is no lender involved, they apply the same stringent tests to ensure their clients have a comparable level of protection. We work with our vendor clients to gather up-front information to eliminate avoidable delays at the beginning of the process as it can often take the solicitor 2-3 weeks to onboard a seller as a new client and issue draft contract papers to a buyer.
Prices in our markets have broadly doubled since the start of the millennium – and more than that in the City, meaning average growth is around 5% per annum (4% in Midtown and 6% in the City). Of course, it depends on the date of the initial purchase. Anyone who bought in 1994, when our records began, has capital growth equating to around 15% per annum. For these owners, although they might regret not selling at the peak of the market in 2016, they can still crystallise an attractive return on their investment. This is the generation now passing on housing wealth to the next generation.
There have been many column inches given to the topic of ‘the housing crisis’ in the UK press and most commentators agree that the root of the problem lies in our failure as a nation to build enough new homes. Capital Economics has reported a 20% year on year drop in housebuilding starts and a 50% fall in private sector starts in two years. Our markets are unlikely to offer any solution as the limited opportunities for new build have been constrained by lack of resource in the planning system.
Planning permissions for new homes continue to fall across the inner London boroughs with applications delayed by planning departments struggling to cope with even routine cases. This year, only 19% of planning applications have been processed within the prescribed 13-week period, compared to 57% in 2013. Many Local Authority teams now work from home, which saves direct costs but has contributed to some of the delays.
The cost of finance is also a factor in the number of planning applications, as interest rates have risen. Anecdotally, we understand that the fall in construction could translate into lower construction costs as contractors look for new projects which would help to rebalance viability.
In July a group of almost 200 small and medium sized housebuilders wrote to Prime Minister Rishi Sunak claiming that they are being driven out of business by changes in the planning system including environmental restrictions and fire safety regulation.
The Government has given housebuilders a 30-month transitional period to implement second staircases in new residential developments above 18m. Existing planning consents have 18 months to start construction failing which they will have to submit a new planning application to comply with the new rules.