PropertyInvesting.net: Property Investment News

“The crash was an overreaction, and in my view property fell below the level of fair value.”

Although the capital has long attracted foreign wealth, Nigel Hugill, co-founder of the developer Urban & Civic, claims the level of overseas purchasing and construction capital deployed after the crash was unprecedented.

Already a leading global city, the safe haven status of the London market was elevated by a loss of faith in the stock market and pensions following the financial meltdown, together with historically low interest rates (0.5pc set in 2009) made borrowing to buy property tantalisingly cheap.

The cash buyer also became a major player in the UK at this time, now representing 33pc of all purchasers, up from 25pc in in the early 1990s. Such sales negate the need for lender surveys and skew pricing.

The bank of mum and dad (and grandma)

The polarisation of the housing market has not just been geographical, there is now a gaping chasm between the generations. Research from the Council of Mortgage Lenders shows that 64pc of householders born in either 1960 or 1970 owned their own home by the age of 35.

For those born in 1980, this figure falls to 44pc, and it’s predicted that only 39pc of those born in 1990 will own their own home by the time they reach 35.

“The resulting affordability issue for first-time buyers and second-steppers is likely to be a long-term feature of the housing market,” says Cook.

Another complicating feature of this cycle is “the bank of mum, dad, grandma and grandad”.

The pension fund L&G has reported that £5bn is passed down from parents to help get their children on the ladder every year. This in turn creates a divide between those who have access to family wealth and those who don’t.

“Prices are just a proxy for the polarisation of a whole range of inequalities,” says Adam Challis, head of residential research at the firm JLL.

Fortunes reversed

During the second half of the property cycle, there has been a reversal of fortune in London, as sales activity in the overheated central zones slow and the rest of the UK speeds up.

Statistics from Savills reveal that over the 12 months to June 2016, central London prices rose 8.6pc, compared with 15.6pc in the outer rim of the capital, 14.3pc and in the East and 12.3pc in the South East. This switch is not unusual but the fragmentation of Greater London into many distinct markets has been so extreme in this era that it has rendered any capital-wide average house price data worthless.

Property prices in the central boroughs, improving transport infrastructure and the gentrification of areas such as Stratford are funnelling young professionals into new parts of the city.

This month’s ONS figures showed that values in Kensington and Chelsea fell 3pc year-on-year, whereas big increases of 20.8pc were recorded in Newham.

Complicating the cycle

Problems in the central London and country markets have been greatly intensified by the previous Chancellor’s obsession with friction taxes. George Osborne hiked transaction tax on sales worth more than £937,000 in December 2014.

“It felt like the market [above £1m] stopped and shuddered that day,” Michelin recalls. In combination with pre-election and post-referendum uncertainty, the city and country markets above £1m are facing “strong headwinds”, he adds, with predicted discounts of up to 30pc in Mayfair.

“Stamp duty is a major complication in this market,” says Hugill. “It was an Osborne landmine which has substantially slowed liquidity in central London.”