Rich homebuyers nervous about getting burned in London

EVEN London’s wealthiest homebuyers are shying away from deals as a cocktail of pricier borrowing and political uncertainty spooks the city’s real estate market.

Transaction volumes across prime London – which includes the capital’s most affluent postcodes – dropped about 20 per cent in the first half of 2023 compared with last year, as indicated by data compiled by researcher LonRes. Deals priced at US$6.5 million or more tumbled the most, as wealthy homebuyers wait for signals on whether the next UK government will shake up housing policy.

“We are hearing anecdotal reports of buyers expressing nervousness around the political situation and expectations of a change in government,” said Nick Gregori, head of research at LonRes. “Combined with the economic outlook and forecasts of price falls, it is no surprise that some people are in no rush to buy this year.”

Millions of UK homes have declined in value this year on the back of a triple whammy of pricey borrowing, economic uncertainty and the worst cost-of-living crisis in a generation. The average two-year and five-year fixed-rate mortgages have both surged above 6 per cent this summer, with the former hitting its highest level since 2008 this week.

Meanwhile, as the clock ticks down towards a general election due in January 2025, the opposition Labour Party’s double-digit polling lead may concern some wealthier homebuyers. Lisa Nandy, Labour’s spokesperson for housing policies, said in May that the party was considering reserving some sales in new developments to first-time buyers and banning overseas residents – who make up a significant deal of prime London sales – from purchasing more than 50 per cent of properties in a project.

The share of new homes sold in advance of completion in London – a type of deal popular with foreign buyers – dropped to 44 per cent last year, tumbling from a peak of 71 per cent in 2016, according to broker Hamptons International. At the same time, the proportion of investors purchasing homes across England and Wales dived to 21 per cent from 70 per cent in 2015, when a buying spree was underway before the introduction of a stamp duty surcharge on second homes in 2016 damped demand.

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Still, the number of prime London properties going under offer in June – billed as a leading sales indicator by LonRes – was 6.3 per cent higher than the same month in 2022, signalling a potential uptick in deals later this year. What is more, the number of price reductions registered in the first half of 2023 is almost double the amount recorded in the same period last year, suggesting a motivation among some vendors to sell in anticipation of a significant house price decline.

However, properties took 100 days to go from under offer to exchanging hands between April and June, the report said, compared with 82 days in the same quarter of 2021. That is as the number of withdrawn home offers grew 8 per cent year on year to 493 in June, while the amount of deals falling through also climbed 4 per cent in the same period.

“Buyers are still out there, and they are keeping the market moving and underpinning values – at least for now,” LonRes’s Gregori said. However, “it’s difficult to ignore the turmoil in the mortgage market, which is set against an uncertain economic backdrop”. BLOOMBERG