With home prices in prime central London falling, cash-rich buyers go hunting for bargains
[LONDON] High mortgage rates and a squeeze on borrowing in the UK have dampened demand and increased the uncertainty surrounding London’s depressed residential property market.
Analysts said that this trend will likely pique the interest of cash-rich buyers – both in the UK and those from overseas – who are looking for bargains and long-term opportunities in the British capital.
The average prices for homes in prime central London have fallen by 12 per cent since their peak in 2015, while those of flats are down 18 per cent, said Grainne Gilmore, the director of research at Cluttons, one of the largest estate agency networks in the UK.
Those lower valuations could attract cash buyers from abroad who are looking to take advantage of the weaker pound.
Investors from Singapore are among those with a sizeable advantage. The pound fell to a historical low against the Singapore dollar of around S$1.50 in September 2022. Today it is trading at S$1.67 – still much lower than the S$2 before the June 2016 Brexit vote.
“The prime London market has global appeal. The pound’s weakness makes UK properties attractive for international buyers and investors, and there are many cash buyers in the prime London market,” said Gilmore.
She predicted that the prime London market will stabilise in the coming months and rise by 0.5 per cent in 2024 and appreciate by 3 per cent in 2025.
According to data from agency Savills, there were 390 sales of properties in London that were worth £5 million (S$8.4 million) in the first nine months of 2023. This is lower than the 459 transactions in the same nine-month period last year, but 67 per cent more than the three-year average from 2017 to 2019.
Philip Harvey, a senior partner at Property Vision, a real estate marketing company, said that London’s new builds have remained in high demand, especially among wealthy international buyers. Of the £1.5 billion invested in Mayfair properties that were worth £5 million or more last year, three-quarters was spent on new builds, he pointed out.
“Despite the pressures bearing down on the wider property market, the appetite for the most desirable new builds is greater than ever,” he added. “But investors should never assume they’re a one-way ticket to prosperity. The reality is that the market is riddled with pitfalls, especially for those buying off-plan or sight unseen.”
Slower wider market
Overall, the residential market in London and the UK has slowed this year due to a sharp rise in borrowing costs thanks to 14 consecutive interest rate hikes by the Bank of England (BOE) dating all the way back to December 2021. According to property portal Zoopla, the market is on pace to have its slowest year in over a decade.
The Royal Institution of Chartered Surveyors (RICS) describe the market as challenging for the average wage-earner in the UK.
“The feedback from our members continues to point to a sluggish housing market with little sign of any relief in prospect,” said RICS chief economist Simon Rubinsohn. “Stretched mortgage affordability and availability are still the dominant factors that are weighing on buyers. The near-term outlook remains downbeat.”
Mortgage rates, both variable and fixed, have surged from a range of 1 to 2 per cent to 5.5 to 6.5 per cent today. When two-year or three-year fixed rate deals expire, many mortgage holders will experience financial stress, economists said.
Chris Buckle, the director of residential research at Savills, said that the “medium-term outlook has improved”, especially after the BOE paused its monetary policy tightening cycle last month and kept interest rates at 5.25 per cent. “Mortgage lenders have cut their rates slightly, and this has reduced the pressure on borrowers,” he noted.
Meanwhile, for investors looking to head into the UK’s rental market, agents noted that prime gross rental yields are at a decade-high of 3.3 per cent and are still rising. The latest index of new rentals from Zoopla showed that average UK rentals have risen by 10.5 per cent this year, following a rise of 12.2 per cent in 2022.
“The increase in rentals is being supported by relatively strong earnings growth, but it’s also due to the supply pressures in the face of surging demand,” explained Gilmore from Cluttons. “High mortgages are forcing people to rent and landlords are selling their properties because of the UK’s tougher tax regime and regulations.”
