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Season of Change and Fair Exchange

02.10.22

The raking up of fallen leaves, long walks followed up by huge mugs of hot chocolate, log fires on chilly evenings.

In a period of seismic changes, a new monarch, a new prime minister, the most radical tax cutting budget since 1972 , it’s comforting to remember that some things in life stay the same.

Traditionally this run-up to Christmas is a busy time in the property market, many buyers and sellers have in mind the idea of starting the new year in a new home.

This year the bets are off. On the one hand Stamp Duty changes should stimulate the lower rungs of the property ladder, international buyers are back in action in London, and city pied-a-terre’s are back in vogue.

On the other, interest rates have hit a 14-year high of 2.25% and the cost of living crisis continues to dominate headlines, providing a counterbalance which should make for an interesting few months ahead.

Exchange rates exert a significant power of central London’s housing market, and the current weakness of the pound is inspiring buyers to move in on a discount property in the British capital.

On the 30th anniversary of Black Wednesday, the day when the UK crashed out of the European exchange rate mechanism, the pound sank to a 37 year low against the dollar, with £1 worth $1.1351.

On mini budget day sterling received another pummelling, falling to $1.09. Things haven’t been this bad since Margaret Thatcher was presiding over Downing Street.

Simultaneously, the pound also hit a 17-month low against the euro – at last count £1 equalled €1.12.

Whilst this is bad news for British businesses and holiday makers, and an opportunity for foreign exchange markets, it does give overseas buyers tremendous spending power in the UK.

Camilla Dell, managing partner of Black Brick Property Solutions LLP comments; “Currency is a massive driver for overseas buyers to purchase UK property, and that is not just American buyers but anybody who is pegged to the US$. When I look at the Black Brick client list it looks a bit like it did back in 2007 and 2008. A lot of our clients work in the oil and gas industry, and a lot are from West Africa.”

The flagging value of the pound means that, effectively, an overseas buyer spending £1m on a house in the UK today would make a saving of £270,000 (or 27%) compared to this time last year.

What these buyers are looking for is as diverse as their nationality. “They want everything from a pied-a-terre to a block of investment flats to a big trophy family house for £50m,” says Dell.

This overseas interest in London real estate is one of the reasons prices are continuing to rise.

According to the latest data from house price analyst LonRes, prime London property prices increased by just over 4% in the year to August and are just over 3% higher than they were before the pandemic.

New instructions, a leading indicator for activity, are up 5.5% year-on-year in prime London, and by a resounding 30% for homes priced at more than £5m.

“The make up of buyers in prime central London means that it does not necessarily follow underlying economic trends,” says Dell.

One potential fallout from the weak pound however maybe a further depletion in stock levels in a market that is already short on supply. Camilla Dell concludes: “Many owners of prime and super prime property in London are dollar based and purchased when the pound was much stronger. They will be reluctant to sell today and crystallize their losses. Any buyers currently circling and hoping for bargains and plentiful supply in PCL maybe in for a shock.”

www.black-brick.com

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