April is the month when rain showers give way to flowers, grey skies to blue. It is also a time when the property market perks up. Yet this year the expected dawn of a brighter day seems to be slower in coming as current conditions are unsettled.
Prices are not dramatically moving one way or another. Sentiment is improving, but scepticism remains. For some, the market seems a bit soft.
Fiscal policy, pending legislation, and persistent inflation all play their part. A look at some key market indicators can help set expectations for the coming season.
More properties available to buy now
Since the pandemic the main market characteristic was lack of supply. The news now is that the number of instructions in the UK was up by 4.5 % in February, for the fourth consecutive month.
At the higher range of the market, we see that today there are 26 % more £5 million-plus homes available than in February of last year.
Sellers may be overly optimistic
As a result of more available stock, there was some price pressure in Prime Central London (PCL). Knight Frank reported the average price fell 2.4 % per annum in March, the same decline as in February.
Meanwhile, per LonRes, achieved prices per square foot for prime properties slid 7.8 %, falling back to early 2014 levels and still 3.2% below the 2017-19 period. Notably, since the start of 2023, nearly 50 % of £5-million-plus properties are seeing reductions. More locally, achieved prices in PCL were on average 10 % below the asking price, which is about the mean over the long term.
Despite the increase in available properties, according to LonRes statistics, the number of transactions in London fell in February. Furthermore, in PCL some agents report that 50% of the properties have been on the market for over six months and 74% for three months or longer. While that sounds like a long time, it’s actually consistent with the average tenure of 164-166 days over the last decade.
As a snapshot of current conditions, some of these numbers look significant, but they are actually close to the average over time.
Pending government announcements anticipated
You wouldn’t call last week’s inflation figure of 3.2 % surprising but you could say it’s ‘stubborn.’ While the Bank of England has held interest rates steady recently, most pundits believe a rate cut is looming.
In fact, back in January the prognosticators were telling us there may be five rate cuts coming up. Now they’re predicting two. They’re also wondering when and if the Conservatives will call a general election before the December deadline. There is some logic to co-ordinating the timing of both for electoral impact.
For the time being, those seeking a mortgage are still looking at a rate that ‘starts with a five instead of a four.’
The difference in the discretionary market
Overall activity in the UK has increased, but much of the transaction volume can be attributed to needs-based buyers (i.e., those who must move because of change in employment or education requirements).
In contrast to those typical buyers who rely on mortgage financing, there is still hesitancy in the discretionary, higher-value markets like Prime Central London, yielding a mixed picture. In the £5-million-and-over market, offers are down 6 %. The number of exchanges is up from last quarter, when they were down 2.5 % below the five-year average. Even though the Q1 rate is 5 % above the five-average, it is not necessarily indicative of a trend.
Changes to non-domicile regulations generating more heat than light
The big news, and the cause of uncertainty in the discretionary market, is the pending changes of the rules around the tax status of so-called ‘non-doms.’
Currently, certain foreign nationals can live in the UK and be registered with HM Revenue and Customs as tax resident here without having to pay UK tax on income and capital gains earned overseas, unless they bring that money onshore or deposit it into a UK account. However, non-doms do still have to pay tax on income earned within the UK.
A person with non-dom status may live in the UK, but claims a permanent home outside the country, which they must prove to HMRC. After a certain period of time, non-doms can pay a charge in order to continue sheltering their foreign income from UK tax. Until now this was considered an advantage mostly for the wealthy.
The rules around residency and domicile remain complex, but a primary part of the proposed changes is to drastically reduce the period in which one can claim non-dom status.
Since the abrupt announcement on 6 March of the changes to the system, advisers are working to understand and interpret how what has been announced will actually apply to different categories of client.
For example, a Middle Eastern client who only comes to London for the summer may not be affected because they do not spend enough time in the UK to be at risk of becoming resident. Meanwhile, if a foreign national has been in the UK for four years already, the implications may be significant.
While it is hard to estimate what impact the changes will have on the housing market, anecdotally, we are hearing of many UHNWIs deciding it is no longer worth staying in the UK.
That said, we need to remember three things. First, there is no legislation yet, and how such rules would legally apply is not clear. Second, it’s highly probable the current Government will be swept from power by the end of 2024. Third, the new Government’s plans are no more certain, not to mention its ability to implement them.
Smart clients always have a Plan B
Advisers we work with are counselling their clients to ‘check in’ with them. Like other developments we’ve had to cope with in the last decade—from Brexit to the pandemic to the ‘mini-budget’—it is another moment for clients to evaluate their positions and understand possible ‘Plan B’ scenarios.
We are speaking to a number of clients and their teams about their plans and their property portfolios. If you are concerned about whether you would be affected by the changes, get in touch for a confidential discussion about your situation.
Photo by Lina Kivaka (pexels.com)
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