A recent review of prime central London property has highlighted a trend which many people may find unexpected. The number of international buyers for prime central London property is now at a six-year high. We know that in the second half of 2018 international property investors accounted for 57% of property purchases in prime central London. While it is fair to say that the sector has been “bumping along” on the bottom for some time, is this a sign that investors are loosening their purse strings?
Brexit uncertainty will come to a head
We know that EU denominated purchases of London prime property is significantly more attractive than just two years ago. Between 2016 and the second half of 2018 an EU buyer would have received a currency exchange boost of around £124,000 on a property valued at £1 million. There are also similar potential gains when it comes to dollar-denominated purchases of prime London property. So, has the worm turned? Are international investors now about to open the floodgates?
Caution but optimism among international property investors
It is fair to say at this moment in time there is still a significant degree of uncertainty regarding the eventual outcome of Brexit negotiations. The general opinion seems to be that both parties are holding their ground as we approach 29 March. There will likely be some kind of extension to article 50 but this would require more give-and-take on each side. It would therefore appear that some international property investors believe the fall in London prices has been overdone and now maybe the time has come to start dipping their toes in the water.
These thoughts may have been dampened somewhat by news that over the last year London prime property prices fell on average by 2.1% to £614,000. The largest falls were seen in Lambeth, down 6.7%, Hackney, down 5.8%, Hounslow, down 5.4% and Tower Hamlets, down 5.2%. However, when you bear in mind that Hackney saw an increase of 568% in house prices between 1998 and 2018, a fall of 5.8% is relatively minor in the broader picture.
Over the last few years we have seen cheap finance flooding the mortgage market and in many ways helping to support house prices. However, there has also been significant tightening of affordability calculations which have priced many first-time buyers out of the market.
This has prompted the emergence of niche market players such as challenger banks, peer-to-peer lenders and private banks. Many of these are seen as more flexible, more understanding and due to their different funding arrangements, more likely to structure deals around a specific customer’s requirements. Set against the traditional off-the-shelf mortgage packages available on the high street, this increase in niche market lending is likely to continue for some time to come.
There is no doubt that the UK property market is being held back by the Brexit factor. However, overseas investors seem to be slowly increasing their exposure to the UK with the London prime property market a growing recipient of investment funds. Even though sterling has been volatile in recent months it has on the whole been far stronger than many people would have expected. Does this indicate money markets have already factored in a worst-case scenario for Brexit? Have we seen the worst of the fall in sterling against the euro and the dollar?
Time will tell but money markets are one of the better indicators of underlying concerns and hopes for the short, medium and long-term. If you are looking for confirmation of market sentiment and thoughts regarding Brexit then look no further than the currency markets.