Rates of Interest in London - It’s Not a Horror Show
Wednesday 19th July 2023
What effect have recent interest rate hikes had on the interest in London property?
There are always a surprising number of ‘immature’ buyers when the media is hysterically trying to talk down the property market to scare everybody.
This is a typical conversation…
Buyer- ‘I am looking for distressed sales.’
Me- ‘What distressed sales? ’
Buyer- ‘Interest rates are rising so prices are dropping.’
Me- ‘Not in Central London in our experience.’
This is a daily conversation and it becomes tedious.
In the rest of the UK, prices are indeed dropping as a result of increased borrowing costs but London is different - as ever !
According to the OECD, in 2010 36% of UK property owners had mortgages. Apparently, in 2020 that was 28%. Quite a drop in 10 years. I suspect the proportion of pure cash ownership in Central London is greater than in the rest of the country – where possibly 80% are wholly owned.
Add into the mix the notable statistic that the number of people on variable rate mortgages has come down from 70% in 2011 to 10% now. I am not sure this proportion carries through to our landlord clients, quite a few of whom are still, to my surprise, on floating rates.
However, it does mean the vast majority of the 20% of property owners in Central London with mortgages are on fixed rate loans. Many may not yet be feeling the effect of the Bank of England base rate increases. These fixed rate loans don’t all end on the same date so if/when they do cause ‘distress’, the sellers will only come to market gradually.
Rates may well come down before current fixed rates deals expire, so the pinch may not be in line with antici………
pation.
With thanks to Tim Curry in The Rocky Horror Picture Show? If you haven’t seen it – you haven’t lived!
Few owners are coming to the market unless they have good reason. Consequently, supply is thin and prices are largely being sustained.
Mature buyers recognise this and on seeing a property they want will simply buy it.
Some private landlords with mortgages are bailing because their borrowing rates have effectively tripled.
This tripling would not be the end of the world if it were not for the crass removal, by (Gordon) Osborne, of the ability of private landlords (only) to offset the interest on their loans against income for tax purposes. Paying loan interest out of net income for a landlord who has already been taxed at 40% or 45% on their earnings is untenable. It means they are making a loss and subsidising tenants.
Most of our landlords inclining to sell have done so already - or are in the process. We do have a few up our sleeve so email me if interested patrick@stanleypropertylondon.co.uk
If sensibly priced, we can sell these ex-rental properties pretty effectively.
It is always tricky to get the best price with tenants in place. Investor buyers tend to be looking for a 5% + yield and despite significant rent increases, yields are not running at 5% in Central London.
It is always easier to get the best price for a property with Vacant Possession (VP).
Landlords who are staying in the letting market are getting much better returns and most private landlords remaining are now 100% cash owners, so see no reason to sell.
They would also be subject to a punitive 28% CGT rate, thanks to a parting gift from the aforementioned (Gordon) Osborne as he was being kicked out of Theresa May’s Cabinet.
Where else would a landlord put the money anyway?!
With a Labour Govt. looming few want to invest in businesses, so many stay in property. It brings to mind that old Victorian adage ‘Safe as Houses’.
Our recent experience is, there is still interest in Central London from sophisticated buyers who can be married to sensible sellers despite higher interest rates.
Few signs of distress.
Until next time.
PB
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