Property Times are Changing
As 2018 shakes off its winter blues and spring starts kicking in, what trends have been developing within the UK property market over the first part of the year?
Article by Fred Bristol, founder & CEO of Brickowner
London freeze and overpricing
The London property market is currently experiencing a bubble which isn’t likely to pop. Instead, we are entering a deep freeze in property prices, with transactions slowing as a result of buyers and sellers being locked into stalemate.
As a buyer, higher interest rates, relatively flat wages, hostile Buy to Let policies and stale high-end property are not reflecting the picture of a “booming” market, thus for the first time in two decades buyers are feeling empowered, with a stronger negotiating position.
Conversely, every homeowner has an ideal value for their property, and on becoming a seller finds it hard to adjust to the reality of the market. The pin that popped the bubble in the 1990s housing crash was caused in part by very high-interest rates creating negative equity, forcing owners to sell. This was held off in 2007 by foreign investment and continued cheap lending. Whilst interest rates have risen, their increase is nowhere near the 16 per cent experienced in the early 1990s. One surprising side effect of the financial crises was the appetite of investors for ‘traditionally safe investments’ such as London bricks and mortar which kept prices high. Until earnings and the economy catch up with these prices, the freeze will continue.
Outside of London, prices continue to grow, and currently, this is where the profit can be found in property, although the chill from the London freeze has started to spread to the home counties.
If you can’t move, improve.
One side effect of the gridlock felt in the London property market that people are looking to improve their property rather than moving homes. In London, the average value per sq ft is £496. If owners and developers invest in a loft conversion (average £100 per sq ft), basement conversion (average £1,000 per sq ft) and side returns (average £416 per sq ft) meaning that even where property prices are low, justification for the spend can be found when weighed against the high costs of moving.
End of Buy to Let and the rise of Prop Tech
Rising taxes, high entry costs, low yields, ever-increasing regulation and evolving technology are all chipping away at Buy to Let’s dominance as the number one way to invest in property. Property investment platforms allow for lower investment thresholds whilst offering better returns and higher diversity across many sectors. Some platforms have adopted a buy/sell stock market-based approach to investing in property that is quick and easy compared to the hassles of buy to let. Buy to Airbnb is another tech trend disrupting the market. Full properties available for short-term rental increased by 54 per cent on AirBnB in 2016-17, while figures from the Residential Landlords Association found there has been a 199 per cent increase in the total number of short-term rentals listed between 2015 and 2017. One reason might be that mortgaged landlords who use Airbnb and other sites for short-term lets have been able to offset their interest costs if they meet the criteria for a “furnished holiday let”.
Online agents continue to grow
After decades of feeling under-served by estate agents, many of us want something new; this is gradually happening with both buyers and sellers increasingly opting for the cheaper, more convenient service of online agents.
While regular estate agents still make up the most substantial part of the market, there has been an 11 per cent increase over the last quarter in the number of online-only agents.
These agents now account for 7 per cent of the market, a trend that has been growing for some time, pushing traditional agents like Foxtons to the way-side, under cutting sellers costs and driving their profit margins down.