Has Rachel Reeves Caused Irreparable Damage to the London Property Market?

Have you been bombarded with emails reporting on the Budget?

Have you been swamped by news articles and opinion pieces?

Are you concerned by the reaction in the bond and stock markets?

I was planning to send you my monthly Prime London Property Trends Letter but decided not to because of the sheer amount of noise in the market.

Unless, you have cleverly instigated a media shutdown over the last week, you will probably be aware of the following points:

1. SDLT has increased by 2% for anyone buying a second home
2. Negative changes to Non-Dom taxation
3. No increase in CGT on second properties
4. VAT on school fees (this will affect house prices near the better state schools)

We were advised by good old Kier, that this was a budget for “strivers”. I like to think I have a reasonably good grasp of the English language, but it appears that I am not a “striver” despite:

• having started my own business
• waking at 5:30am most mornings – admittedly to train for my next Forrest Gump impression by doing an ultra-marathon for charity, but I still start work before 7:30am
• working until well after 7pm most week days
• reading/studying in my spare time

Our beloved Prime Minister’s message seems to be that if you are successful, ironically through striving, you are no longer a striver! Apparently, we suddenly transform into feckless wasters… and even if this was true – which, with the rare exception, it isn’t – it rather overlooks all the sacrifices that you have made to be successful in your chosen field.

But on the other hand, very well done if you happen to win the National or Euromillions lottery…

And instead of repelling the people who are the most productive, innovative and resilient would it be a bad idea to try to save some of the tax money that is wasted by rank incompetence?

Just as a simple example, the original budget for the High Speed 2 (HS2) project was £55.7 billion. However, the actual cost has increased dramatically and is now estimated to be between £72 billion and £98 billion with both Conservative & Labour governments to blame.

And this is just one example. Just imagine how much is wasted on an annual basis across the public sector… Anyway, I could tell you what I really think of Starmer’s view on “Strivers”, but I won’t as this is a family friendly publication!

Of course, the Budget was always going to be a joy for journalists and the talking heads because it plays on people’s emotions. But what can we really tell at this early stage?

While you can find Gigabytes of information and opinion pieces, you would have found exactly the same after a certain Budget you might remember from 2022: Liz Truss & Kwasi Kwarteng surprised everyone and the fallout was immediate. Here are some of the individual and market reactions:

• “The U.K. government is operating like the government of an emerging country” Ray Dalio (CEO – Bridgewater associates)

• On 23^rd September 2022 the FTSE was at 7504. It then plummeted to 6700 a loss of 11% in two weeks. However, it rose to over 8,000 by February 2023.

• The FX market was even more lively – in August 2022 GBP bought you $1.23 but a week after the Budget it fell to $1.035 with several people saying that it would go below parity with the dollar and stay there for some time. However, Sterling recovered to $1.16 in a couple of weeks and $1.24 in December. Then strengthening to $1.31 by the middle of 2023.

Yet, despite predictions of the UK disappearing into an abyss – also see Brexit and Covid for similar predictions of Eternal Damnation – we are still here.

Please note, that I am not suggesting that any of the above has been good. The UK should be in a far stronger position than it is, London especially. But would it be unreasonable to say that we are some distance from the worst-case scenarios that were predicted as being odds-on certainties to happen?

Would it be unfair to say that the UK is actually in as good shape as most of Europe despite having been told that we were/are a basket case?

Does this mean that I am happy with what Labour have proposed? No. But I was also astounded by the rank stupidity of many Conservative policies (for example, they are far from blameless in the handling of the non-dom situation). Fortunately, the UK has a system that works despite the politicians and not because of them. The world will keep spinning and there will be opportunities.

Unfortunately, it is very easy to make knee-jerk reactions when there is such a furore. But is this really a wise course of action?

I have clients who are thinking of selling properties; not because of the budget or any external factors. It has just become time to sell and they have been contemplating this for a year or so.

My advice to them – let’s wait a few weeks and see how things settle. It may be that it makes sense to wait until next year before choosing the best agent to sell their property – none of them need to sell, so why rush?

In the case of non-doms, it has been estimated that 25,000 people will benefit from four years of tax breaks under the new regime while 9,300 will be ineligible. It is estimated that up to 25% of these may leave. Frankly, the figure could well be higher and I think the government’s handling of this is for political reasons rather than intelligent, financial ones.

However, it is important to note that non-doms’ UK property was within the scope of IHT anyway, so many probably won’t sell up even if they themselves leave. Why?

1. Because they want a UK home and the cost of downsizing doesn’t make any sense (e.g. SDLT)
2. There are ways to mitigate IHT that are simple and very cost-effective. If you would like more information on this, please email me at [email protected].

In short, there has been no panic selling by my clients who own property.

In terms of my clients who are looking to buy, we have exchanged on two properties in the last three weeks and have another under offer. Meanwhile other clients are still actively looking to buy. Obviously, we will take the increase in SDLT into account for those whom it affects and will use it in negotiations even for those it doesn’t.

More importantly though, there will be sellers who panic unnecessarily and will accept significant discounts on “Best in Breed” properties. Indeed, it is stunning how many sellers – especially international ones – don’t have good advisers and seem to be completely reliant on the news for their information. These are the people who make massive mistakes by reacting to emotions rather than facts.

My view is that we will see a fall in transaction numbers between now and Christmas (except at the lower end of the market in the UK). This will be greeted by the press as conclusive proof that the market is about to crash. However, it will likely be a good time to buy as those who are motivated to sell will accept lower offers.

Then, next year, activity is likely to pick up when the masses realise that there hasn’t been a collapse in prices and the mortgage market becomes more competitive, as banks become ever keener to lend, because they are awash with cash (the base rate does not have to decrease for mortgage rates to become more competitive – banks will tighten their margins).

Of course, as I repeat ad nauseam, every area and price range is different. As an example, this is from the latest Lonres report:

“As always, the averages across our all-prime London catchment hide some significant variations at neighbourhood level. Here we highlight some local market trends for the year to date.

• On average, a single square foot of prime London property is currently worth around £1,300.
• However, the average this year in our Mayfair & St James’s catchment is almost double that at £2,388. The highest achieved value in this area is triple that average at more than £7,000.
• In Marylebone, this year’s highest value sale achieved over £5,500 per sq ft, more than three and a half times the local average.”

The above is really only scratching the surface.

So, if you want to discuss what is happening in the prime London property market and how it affects you, do let me know. Everyone’s situation is different so irrespective of whether you are thinking of:

1. Acquiring a larger home
2. IHT planning and acquiring property for your children
3. Downsizing
4. Selling and renting
5. Making further investments

Or simply would like to have a general chat about what is happening, simply email me at [email protected] with any questions.

Anyway, I hope you are well and please keep on striving despite cretinous political proclamations!