November 2018 - London On Its Knees

7 min read
  • Worst sales volumes for a July in the capital since Land Registry records began (1995)
  • Help to Buy London initiative failing
  • Is it time to abolish 2nd home stamp duty?

All statistics which follow are the most recently available figures from the Land Registry and the Bank of England unless otherwise stated. If you are buying or selling in London then get a free no obligation quote from our London Conveyancing Solicitors.

Can it get any worse for London's housing market?

There were just 6,917 property sales in London in July; aside from this being the 11th month in a row of year-on-year declines (and volumes have fallen year-on-year in 24 months out of the last 28), most startlingly this represents the worst volumes for July since the Land Registry started recording the figures in 1995.

The fact that London's average house prices for September, at £482,241, were only £6,286 below July 2017's peak of £488,527, makes the context even worse. Even though Homes England provided some relief by releasing figures showing that housing completions for April to September this year, at 15,704, were up year-on-year by 31% (from 12,030 for the same period 2017), it could not provide the same regarding the success of its flagship London first time buyer scheme.

According to Homes England, since London Help to Buy with its increased size (40%) maximum equity loan was introduced in February 2016 and March 2018, there have been 7,978 completions. But over the same period, the capital has seen 212,853 completions overall, meaning London Help to Buy has made up a paltry 3.7% of these, hardly a marker of success.

So how else can the Government help London's ailing housing market? Remember that Theresa May said she'd prioritise fixing the housing crisis not too long ago...

Time to abolish second home stamp duty?

As part of a number of measures to increase the numbers of houses available to first time buyers and to boost first time buyer sales, erstwhile Chancellor George Osborne attempted to decrease the number of Buy to Let landlords by taking punitive measures against them through the tax system.

The most prominent - and controversial - was the 3% second home surcharge he introduced in his April 2016 budget. However, it's clear from current price levels and sales volumes that there hasn't been a noticeable exodus of landlords selling their property portfolios, particularly in the capital, and in turn an increase in supply of homes purchasable by first time buyers and, most importantly, a decline in price levels such that properties have become more affordable. Is-it-time-to-abolish-2nd-home-stamp-duty.png

Into the bargain, Government revenue from stamp duty on property sales fell by a tenth in the third quarter of 2018 compared with the same period last year, such that the Treasury is likely to realise around £1bn less than it expected from its earlier forecasts, according to its own projections.

There's no doubting that the first time buyer relief Chancellor Hammond introduced in his November 2017 budget has been greatly appreciated by those able to take advantage of it, however the relief clearly has not had sufficient take-up to trouble the persistent sluggish sales volumes.

Stamp Duty Revenue Declines

HM Revenue and Customs revealed that total revenue from residential property sales was £2.347bn in the third quarter of 2018, compared with £2.605bn in the same period of 2017.

Many experts, particularly from the Estate Agency sector, view the second home stamp duty surcharge as severely distorting the market because it has particularly affected sales volumes at the luxury end which has caused ripples throughout the market. For example, retirement-age home owners of more expensive properties are arguably deciding not to downsize to smaller properties and home movers are choosing to stay put rather than pay the extra tax.

It would be a controversial move to axe 2nd home stamp duty, particularly because many would see it as a Conservative Government once again favouring those with greater means, however there is a growing body of opinion, particularly from industry stakeholders, that this action should be considered.

What's the general picture for England and Wales?

In terms of sales volumes, the 67,476 recorded for July for England and Wales made for dire reading - although this performance was nowhere near as gloomy as for London. Volumes fell 16.8% year-on-year - the 8th consecutive month of declines - and 9.3% month-on-month.

There was some good news for estate agents however, because, for September, the average house price rose to £244,354 - the highest ever recorded - which represented a 3.2% rise year-on-year.

Mortgage approvals up...but is this grounds for optimism?

The Bank of England reported 67,086 mortgage approvals for October, a 2% increase month-on-month, a 4% increase year-on-year and the highest figure since last January's 67,264. Remortgages were more or less static, at 49,339 approvals compared to September's 49,337 and actually declined 3.5% year-on-year.

On face value, these figures might be viewed with optimism as they could signify that people are starting to move home rather than stay put. But if we return once again to the persistently dire sales volumes, particularly in the capital but throughout England and Wales, it is clear that this is an inadequate conclusion to draw.

In fact, if sales volumes and mortgage approvals are taken together, might this be the sign of even more bad news - that cash buyers are in serious decline?

Housing demand and supply down in October says NAEA

The National Association of Estate Agents, the UK's leading professional body for estate agents, reported a fall in both housing demand and supply in its October report.

House hunters registered per estate agent branch fell by 13% on average, from 338 in September to 294 in October, which was the lowest number of buyers recorded for an October since 2012, when there were 265 registered.

Supply decreased by the same 13% in October, according to the NAEA, with September's 46 per branch falling to 40 on average in October.

Some optimism re: first time buyers?

The NAEA reported that of all sales, 23% were to first time buyers, a marginal increase from September's 22% and 3% above August's 20%, this last being a three-year low.

Even more houses being sold below asking price!

The NAEA's report didn't exactly highlight another significant finding, that some 85% of properties sold for less than the original asking price in October.

We've frequently cited in our reports how persistently high this percentage has been, however 85% represents a new peak and continues to beg multiple questions.

Andrew Boast, co-founder of SAM Conveyancing, said:

" There's no doubting that Brexit uncertainty must continue to play on the minds of prospective home buyers and sellers and that this period of the year is generally a quieter one for the property market, however London's property market is now at a virtual standstill and it must be hoped that its malaise doesn't ripple out to the wider UK housing market.

" Industry stakeholders are calling for radical measures from the Government, with a considerable number demanding a repeal of 2nd home stamp duty. It would be advisable not to cut first time buyer relief however but if overall tax revenues are falling because of 2nd home stamp duty, there might be no reason to remove the relief.

" The fundamentals remain the same however: the UK still needs more houses to be built and pricing needs to become more realistic. And it's advisable also that would-be purchasers should not invest hope in Brexit causing large average price falls: if this happens, it is likely to be accompanied by a downturn in the wider economy which may well bring with it a more expensive mortgage market, falls in employment levels and other retardant factors. "

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