Every industry sector has its own canon, certain accepted conventions, and a unique vocabulary.

In the UK property market, last week saw a flurry of news about reforms, causing readers to wonder: How much is ‘marriage value?’ What do you pay for a ‘peppercorn?’ What does the King’s speech have to do with the price of property in London?

Anyone who has bought or sold property in the UK may have an idea, but most people could find such concepts unfamiliar, even mysterious.

Is conventional wisdom enough?

There are some general rules of thumb in any business. Still, investors work hard to stay on top of trends and developments. They know that no one knows everything, so they turn to various sources of information to form hypotheses, validate their assumptions, and make decisions. Family offices use in-house staff or consult outside advisors on strategies for alternative assets like real estate. Conventional wisdom and rules of thumb are useful when the goal is to manage risk and mitigate uncertainty.

These days, though, a property transaction is rarely as straightforward as seller and buyer agree a price, shake hands and keys are handed over next Friday. Especially at the high end of the market where investment considerations are as important as the utility value of actually living in a property, completion involves multiple parties and requires many steps.

Increasingly, for a transaction to happen, the proposition has to be easy to understand. For example: a new development, designed to a high specification, ready to move in, or a classic period property that has been well renovated by a reliable firm. In times like these, anything else—an overly complex ownership structure, compromised construction, or a huge time and effort requirement to make it right—will be passed over at first glance.

In all cases, the rules and regulations are complex and subject to change.

That’s why, in the UK, between the King’s speech and the Autumn statement, property pundits are busy prognosticating. On top of the available data, forecasts and analysis are meant to give us some sense of consistency and certainty, all against a backdrop of market reforms that have been in the making for some time now.

Take the topic of enfranchisement, which is the primary component of the reforms that are making their way through Parliament. It may seem convoluted and even contradictory, given the latest pronouncements; however, there are experts who specialise in the field who are tracking and anticipating any changes to the rules. So, buyers and sellers should not consider it a deal breaker.

Gauging current sentiment

Factually, looking at recent September numbers for market activity, UK mortgage approvals are one-third below their five-year average. And transactions were down by almost 25%, according to Knight Frank.

COVID-19 can’t be to blame, so what is? The pundits point out the usual suspects of late:

• The higher cost of finance changes the equation for growth prospects.
• Inflation is persistent and pesky for the Bank of England.
• A looming general election sees both major parties erring on the side of steady and cautious pronouncements.
• Global geo-political conflicts trouble the collective consciousness.

It all adds up to what they call ‘weak sentiment.’ Hand wringing. The waiting game. Lots of talk, less action. Overall, the UK picture for October is about the same as this time last year (remember the ‘mini-budget’ debacle?).

However, it’s important to keep in mind that the unique characteristics of Central London mean it often rebuffs the slings and arrows of the nay-sayers. (Note that in contrast, meanwhile, Savills refers to the market in outer London precincts as ‘needs-based.’)

Prime Central London is still unique territory

Currently there are a number of interesting indicators in Prime Central London (PCL) which do not neatly conform to the conventional patterns. PCL is a terroir unto itself, if you will.

First, cash buyers are even more prevalent. Mortgage dependency dropped by a third in 2023, with such transactions making up only 22 % vs 34 % the previous year (Source: Savills).

Second, the thorny problem of the ‘expectation gap,’ which is the amount of flexibility on price that sellers and buyers anticipate, persists. The former are overly conservative; the latter optimistic, with few signs of either budging.

Third, while average prices in PCL are down only a trifle at 1.6 % on the year (most of the fall coming in the last six months according to Knight Frank), it’s the biggest drop since the stamp duty holiday back in July 2020.

Fourth, a higher level of high-end rental listings indicates owners are hesitant to sell yet flexible and willing to get in the market: the number of units asking £1,000+ per week is up 22 % year-over-year (Source: Knight Frank).

Fifth, currency rates impact the value for overseas buyers. Since the last market peak in late 2014, the discount in property values for dollar-denominated buyers peaked at over 35% in the second half of 2020 and today is effectively 27%. For other currencies there are also advantages with effective discounts of approximately 17% in Euros and 16% for Chinese Yuan (Source: LonRes).

The latest LonRes Market Briefing, comparing central London to the UK overall, sums it up nicely: ‘Whatever path the UK housing market takes from this point, the one for prime London could  diverge significantly.’

Neutral is good

Despite the overall neutral picture, there is activity in the market, and sophisticated investors can still find opportunities by working with specialist advisors. This is particularly true in PCL where not all properties are publicly advertised. In fact, at Longview more than half of the transactions we are managing are for off-market properties.

Since September we have seen some interesting listings come to market. We’ve met with more agents face to face than last year and more clients are back in the market. As we head toward the close of the year, conventional wisdom plus specialist insight will continue to be the correct combination to help clients achieve their goals.

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