I believe that 2016 will be looked back upon as a great year to have purchased London property. Rather than just hoping this comes true, let me explain why history is firmly on my side. Cast your mind back to 1998. It was a fantastic year to buy property in London and indeed, it was the year I purchased my first London apartment, 1200sq.ft in Earls Court for the princely sum of £279,000. All I can say is that it was a lot of money at the time for me.
But in 1998 we had just had the collapse of the ‘Tiger’ economies, Russia had just defaulted on its bonds and Long Term Capital Management had gone bust, nearly wiping out the entire financial sector and causing panic. Everyone said it was a dangerous time to be buying property and the press were full of the usual tales of doom and gloom about the future. I rationalised it all by deciding that London was the greatest city in the world and I wanted to own property in it. I could just about afford to do it, so I did.
The big property crashes of 1990 and 2008 occurred when the consensus was that prices could only go up, that is to say that everyone who could buy property was already in the market. This explains the mad frenzy witnessed in 2006-7 when prices leapt 30% in places.The last 6 years have seen London prices climb around 10% a year despite a tightening of lending criteria. Indeed, over half £1m + properties are bought with no lending and a further 25% are purchased with small mortgages of less than 50% LTV. The foundations are solid.
Many properties are still coming to the market at 10% to 15% more than their true value. Some vendors would rather take their chances with the agent giving the highest valuation than achieve an actual sale. The properties that are being reduced are the ones that were overvalued in the first place. It just leads to resentment between the vendor and the agent and achieves nothing except frustration.
The bookies have our chances of leaving the EU at around 20%, although they also had Labour as clear favourites to win the UK Election last year and called that spectacularly wrong. My feeling is that the vote will be much, much closer. I have just received the latest poll from an admittedly unusual souce, a UK Bullion dealer. It shows that 78% of their clients will vote to leave. Now it may be that buyers of gold bars and silver coins are a traditional bunch and naturally suspicious of the EU and all it entails…or it may be the polls and bookies have it all wrong again. Either way, this vote is far closer than the polls suggest.
Let’s look at the ‘nightmare scenario’, namely we vote to leave the EU on June 23rd. We will see an increase in the amount of home grown investors and international buyers from outside the EU seeking a safe haven asset, especially if Europe implodes. Sterling should weaken or ‘plummet’ according to the UK press. However, history has shown us that international buyers will use this weakness as a chance to acquire London property at a discount. If we stay in the EU, the uncertainty will be removed and prices and activity will perk up. I suspect the UK press will then turn their attentions to the damage a Trump presidency will do to the UK…and so it goes on.
For those that see London as one of the best and safest places to live, dine, study, work or retire, it will make little difference. Those that have repeatedly predicted that the property bubble has to pop soon have many good arguments, some of which I sympathise with. However, one overriding fact means they are likely to be wrong for some time yet. It’s these low levels of borrowing. Owners and residents are sitting on huge cushions of equity, even if they bought in recent years. The only sellers that are vulnerable are forced sellers, perhaps those who borrowed too much or who have had a dreaded ‘change of circumstances’. Other than these folk, very, very few have to sell regardless of how the UK votes next month.
If you are thinking about buying or investing in London, please get in touch. I can be contacted on firstname.lastname@example.org