COVID-19 and the London Property Market: What Now?

The state of the London property market saw drastic changes during the first wave of COVID-19. How is it faring in a second England-wide lockdown?

Alpa Bhakta, CEO of Butterfield Mortgages Limited, explores the current landscape of London property investment and how it may soon shift.

During the last five years, the prime central London (PCL) property market has witnessed significant shifts and spikes in demand and supply. However, nothing could have prepared the market for the immense impact of the COVID-19 pandemic and the consequential UK-wide lockdowns.

The economic ramifications of the novel coronavirus pandemic will undoubtedly be felt across the global economy for some time. But, when it comes to the UK prime property market, there is more than one reason to be optimistic about the future.

Alongside numerous other measures introduced to encourage consumer spending and investment activity, the UK government announced a series of measures to support transactional activity across the real estate market.

And, in this, the government has been successful. Recently, the property market witnessed its fastest rate of house price growth in over four years. This is very much a result of the Stamp Duty Land Tax (SDLT) holiday. No wonder, given that the tax relief policy allows anyone – from first time buyers to seasoned buy-to-let (BTL) investors – to save up to £15,000 on British property purchases.

Based on experience helping clients navigate the PCL property market, I’ve noticed multiple trends that potential PCL investors should keep abreast of over the coming months. As England navigates its second nationwide lockdown, the precise nature of the capital’s property market remains uncertain. Nonetheless there are certainly things for those interested in prime property in the capital to be on the lookout for.

Recently, the property market witnessed its fastest rate of house price growth in over four years.

London: the jewel of UK property?

With remote working set to remain a reality for many of London’s professionals, some property commentators feared a collapse of the PCL market as newly homebound workers fled to the countryside. This has demonstrably not occurred.

Although some shift in buyer demand away from central London and towards quieter, more suburban areas was recorded by Rightmove, this trend’s impact on the PCL market is seemingly minimal.

Despite the so-called working-from-home revolution, the market for properties in central London worth in excess of £5 million has been one of the most active sectors of the UK’s real estate market throughout 2020. The number of transactions involving such properties was 13% higher during Q1 2020 than during the same period in 2019; and Q3 saw more PCL housing sold than during any other quarter since 2015.

Even within the £5 million + London property market, over half of all such sales are located in just five postcodes, according to Savills.

The driving force behind this spike in activity is multi-faceted. Yes, the previously mentioned government initiatives to support the UK property market are partially responsible. But, given that the SDLT holiday only protects the first £500,000 of a purchased property’s cost from the tax, there must be other underlying forces at play.

One such force is the SDLT foreign buyer surcharge. Due to be implemented on April 1, 2021, this added 2% tax for those purchasing British property from abroad represents a massive intervention into the PCL market. In H2 2019, such buyers represented 55% of all PCL transactions.

A motivating factor for many foreign buyers at present, then, will be to avoid this added cost. This trend will likely continue until the currently scheduled end of the SDLT holiday on March 31, 2021, with international investors keen to complete on transactions before this key date. Reportedly, 22% of such buyers are so keen that they’ve purchased property without a single viewing, according to London Central Portfolio.

With such an impressive year for transactions numbers then, I believe that the PCL property market’s prospects should only improve as COVID-19 is brought under control.  At the moment, that could be sooner rather than later based on recent vaccine announcements.

As it currently stands, the PCL property market looks set to remain strong for the foreseeable future. Buyer demand from domestic and non-UK residents is increasing the number of transactions taking place, demonstrating the underlining attractiveness of prime property as an investment venture.

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