Jackson-Stops Market Review No.45

COUNTRY MARKET COMMENT

Confidence at the upper end of the market had flown upwards, only to be gripped by the constraints of coronavirus. We continue to operate and help our clients.

LONDON MARKET COMMENT

Following the strong start to the year, London buyers and tenants alike remain active in registering and calling, even as they adjust to working from home.

NEW HOMES & DEVELOPMENTS

‘Net zero carbon’ is the aim of the new Future Homes Standard, and of the 65% of councils to have declared a climate emergency. Will future new homes measure up?

Country Market Comment

Main photo: Suffolk £2,500,000 guide (Ipswich)

Front cover and left: North Devon £1,250,000 guide (Barnstaple)

CONFIDENCE CONSTRAINED

A brilliant start to the year highlighted a confidence in the country house market which increased sales closer to large cities and suggested, looking across a decade of divergence, that overdue regional corrections were underway. Since then we have, of course, entered unchartered territory.

The first quarter of 2020 was marked by real momentum which, for the first time in years, started from the top. Some of this was price-related: central to an increase of over 10% in our sales over £1 million in recent months, has been an acceptance of market realities by buyers and sellers alike. Of course, those realities now include coronavirus. This has dramatically changed how we handle enquiries and show properties (videos, ‘Street View’ and suchlike can only go so far), to protect our staff and those we serve and comply with new laws. How seriously it will affect the market over the coming months is hard to see at present.

Main photo and inset: Somerset £1,350,000 guide (Taunton)

A DECADE OF DIVERGENCE

Our analysis of Land Registry figures (see graph) shows a decade which, having started at a time when sales volumes were low, saw them fall further in its first two years. The number of sales taking place then varied increasingly from region to region, perhaps indicating local factors at play. A closer look, though, reveals that the divergence coincided with slightly higher stamp duty rates for more expensive properties from 2012 and much higher rates from late 2014, when, alongside, the tax payable lower down the scale, was reduced. This suggests that, far from being caused by local factors, the differences arose because national stamp duty tax suppressed sales at upper levels, disproportionately affecting market activity in higher priced parts of the country. As a result, fewer buyers moved out from the more expensive south-east, reducing the transfer of wealth to other areas. The ‘ripple effect’ – an established stabilising mechanism of our national property market – was inhibited. This is one of the reasons why values in some regions have barely recovered to their 2008 peak whilst the South East, even excluding London, is 38% up. It is also why higher activity there, is good news for sellers everywhere.

SERIOUS SELLERS ARE SERIOUS BUYERS

The majority of house movers in the middle and upper levels have to sell, to buy. Yet no one wants to be involved in a chain. This gives unencumbered buyers a clear advantage, with buyers whose own sale is ready to exchange, a close second. In markets starved of stock, buyers understandably wait for the ‘right house’ to come up, before marketing their own. This almost never works, because better placed buyers beat you to it. When underlying supply is picking up (as it was), this increases confidence that the ‘right house’ will come up soon, which increases supply a little further... and so, rather like untying a tight knot, the market

VOLUME OF HOUSE SALES (EXCL. NEW HOMES) COMPARED WITH 2010*

becomes a little, then much more fluid. Finding what you want should – if the market picks up where it left off – get easier. When you do, sellers will only take you seriously, if you are serious about your dependent sale.

PRICE, CLICK-THROUGHS & BEST OFFERS

In the last edition we emphasised how buyers today know their market values and will not even look at an over-priced house. Most of our sales are to buyers already registered with us, but online searches invariably start with location, price and picture. Your house appears in a beauty parade, complete with vital statistics. If it doesn’t compare well, you don’t get a second glance. This is why price and picture matter so much. It is also why deliberately pricing at the lower end, then going for best & final offers, is so often the best strategy. Generating lots of interest simultaneously, creates competition and thus the best price. We frequently adopt this tactic because it works so well.

HOLIDAY HOMES & FIRST TIME BUYERS

When the market resumes, we expect a revival in demand for seaside homes and others most suited for holiday use. Lowest-ever interest rates now mitigate much of the extra stamp duty and the trend for easy-access, UK holidays without air travel, persists. Occasionally, first time buyers compete with holiday home buyers, but location needs make this rare, whilst lower inflation and interest rates, zero stamp duty and Help to Buy have made buying for the first time more affordable now, than a decade ago, in all areas bar London† (where 40% Help to Buy applies). Welcome as renewed top end demand is, the market ultimately depends upon first time buyers, so this is good news for all.

*each year being 12 months starting 1/10/09, ending 31/9/19

†Nationwide / ONS

Left: Our technology enables us to compare the number of clicks per day on any specific property, with the average for similar homes in the area. Overpricing is thus graphically demonstrated.

Top: Kent £1,500,000 guide (Cranbrook)

Bottom: Cornwall £1,400,000 guide (Truro)

Opposite page:

Top: Gloucestershire £1,195 pcm (Burford)

Bottom: Cheshire £6,500 pcm (Alderley Edge)

HAPPIER MARKET

The country rentals market features less frustration than for a long time because most of those in it, want to be there.

Cutting to the chase, having seen rents increase barely in line with inflation last year, we are seeing above inflation rises now, especially in those areas which experienced the biggest falls over recent years. Renewal levels are high and increases of below 3% less common than those above 5%. Instances are growing of newly renovated, high quality new lets achieving much more. All good reasons for landlords, after a long fallow period, to be cheerful, yet tenants, overall, are happier, too. This is mainly because far more of them, are there by choice.

The last decade saw both financial turmoil and financial ‘stasis’, as sluggish property markets, higher credit barriers, and decreases in real wages conspired to force some who couldn't sell, to let and many who couldn’t buy, to rent. Circumstances created “accidental landlords” and begrudging tenants. They also prompted many investors whose savings were generating near zero income to try their hand at being a landlord, instead.

The last two years have seen this position shift markedly. As noted elsewhere, affordability for first

time buyers is higher than ten years ago in all areas bar the south east. As a direct result, the English Housing Survey reports that, “After more than a decade of decline, the proportion of 25-34 year olds in owner occupation has increased” and that as many are now owner-occupiers, as are private sector tenants. From our perspective, this means far fewer instances of tenants complaining that credit restrictions are stopping them from buying, for less than the cost of renting. Similarly, greater equilibrium in the sales market has long since enabled accidental landlords to sell, whilst tougher regulation and higher taxes have prompted so-called ‘amateur’ landlords, to either get professional, or get out. Most of those now in the market, want to be here. This now routinely includes families renting in a new area before they buy and, increasingly, downsizing retirees who want to release equity and be free of any maintenance concerns. This supports our view that, having emerged from almost nothing twenty years ago, the country rental market is maturing to the point at which it is contributing significantly to the functioning of the residential market, overall.

What will £1,000,000 buy in the country?

WHAT WILL £1,000,000 BUY IN THE COUNTRY?

More than four times the current UK average house price of £235,000 (Land Registry), what a million pounds secures, varies greatly across the country.

This page, clockwise from the left:

Northamptonshire £1,100,000 guide (Northampton)

Dorset £1,000,000 guide (Bridport)

Essex £1,100,000 guide (Chelmsford)

Cheshire £1,100,000 guide (Chester)

Above: Cornwall £1,100,000 guide (Truro)

Below left: Suffolk £1,085,000 guide (Newmarket)

Below right: Gloucestershire £995,000 guide (Cirencester)

Examples from our offices outside London

BIG COMPANIES RENT BIG

A strong recovery in corporate lettings prompted London rents to increase at all levels, especially the very top. What is behind this growth in corporate demand and can it continue in the face of unexpected economic threats?

London had been buzzing to a degree we’ve not seen for quite some time. Our Q1 rental renewal rates were their highest in a decade and rental demand leapt up at the start of this year. This activity has been subdued by coronavirus movement restrictions and the massive shift to working from home though, at the time of writing, most who were intent on moving, still seem keen to do so.

Some of the excess rental demand is, it must be said, down to reduced supply: the number of homes in London’s private rental sector fell nearly 7% between 2017 and 2019 and around half as many again were diverted into the holiday lets market. Yet this does not explain the increase in corporate demand, which had been low since at least 2016. A glance at various economic reports gives a clue. For example, whilst it might be cheering to note that the number of start-ups in the City was even higher last year than the year before, they don’t count for much in macro-economic terms because the largest one percent of companies within the City account for 50% of its jobs. And it is those large companies, in the City and beyond, which are spending: in Q4 last year, the proportion of large London firms undertaking capital investment rose to its highest level since 2015. They can invest because they are so productive: bucking the UK trend, London’s productivity is higher than any of the 52 regions of Western Europe bar that of Paris, and its employment rate is at its highest level since the current methodology began in 1992.

RENTS INCREASING

The most obvious consequence of this improved big company activity has been higher demand for corporate lettings, at all levels. At our Holland Park office, for example, Q1 family house rentals were up significantly on last year, including several top-end, long-term lets (e.g. one at £65,000 per month – nearly two years for the same cost as the stamp duty on a £10 million house). At higher volume, lower price levels, numerous Holland Park re-lets serve to directly demonstrate the impact of extra demand: a 12.5% increase over the nine months to March 2020, in the case of one two bed, two bath apartment let for £760 per week.

Previous page: Holland Park W11 £14,083 pcm (Holland Park)

Main photo: Albert Embankment SE1 £8,450 pcm (Mayfair)

Right: Wimbledon SW19 £3,700 pcm (Wimbledon)

This pre-pandemic picture of higher corporate demand is seen from Mayfair to Teddington. In Richmond, properties which let for £3,000 per month a year ago are being offered at £3,500 today, echoing the increase referred to above. Interestingly, whilst Weybridge, too, has seen growing demand from large corporates, much of theirs is local: Alliance Boots, Proctor & Gamble, Sony and Huf Haus, to name just a few, are all based nearby and they, too, appeared to be growing.

GROWTH IN TOP-END SALES

The sales market was much stronger last year than most assume. This year, the upper end in particular has been attracting a great deal of interest, even while so many people work from home. Our Pimlico & Westminster office, for example, having enjoyed consistent demand below £1.5 million over recent years, has seen sales up to that price point increase by almost 10% whilst, over it, Q1 sales were up by over 20%, including a number of larger terraced houses at between £3.5 and £4.5 million.

'OFF MARKET' SALES LIKELY TO GROW

We urge buyers who want to increase their chances of getting the property they want, to register with us. At the instruction of our clients, some 30% of our sales now are “off market” – a figure which tends to grow during

volatile stock market times when some wish to raise cash quietly. Off-market properties do not feature on any website, so if you rely on online searches, you don’t get to see these at all. Registering highlights your serious intent and helps us to understand exactly what you want. That way, when a property ‘with your name on it’ comes up, you get to know about it fast, whether or not it is scheduled to go online. This can and often does make all the difference between finding what you want, or settling for second best.

PRICING FIRMER, IF SENSITIVE

Expectations for capital gains remain low and awareness of stamp duty, high. Indeed, the growth in top end sales was due, in large part, to buyer confidence that values had stabilised, coupled with seller acceptance that they had to share some of the pain of higher purchase costs. Testing the market constantly, we continue to achieve an average of 97.5% of asking price and view pricing strategy as central to sales success, especially given the price-led way in which most buyers search online. The extra 2% tax payable by overseas buyers from April 2021 will increase demand to some extent, but probably not until the end of the year. By which time, we very much hope, the current health and economic crisis will be over and everyone in London, will be back at their desks.

Sources: In-house data, City of London jobs factsheet 01/20, London Quarterly Economic Survey, GLA Economics, ‘Productivity in London’ 09/19.

Above: Surrey £1,595,000 guide (Weybridge)

Bottom left: Pimlico £2,800,000 guide (Pimlico)

Designs by Norman Shaw (opposite) left to right. Cragside, Morpeth Swanscombe Church, Kent Bryanston School, Dorset

THE CLOCK TOWER, WIRRAL

Designed by the definitive architect of late Victorian styles, for a client whose White Star shipping line led the business of transatlantic travel.

The client was Thomas Ismay. Apprenticed to Liverpool shipbrokers in 1853, aged 16, Thomas then worked at sea before returning to found a shipping business with a family friend. The business did not last: unlike his friend, Thomas saw iron, not wooden ships, as the future. Thomas acquired the flag of the White Star Line and began chartering ships for passenger transport. In 1870, his company commissioned its own ship for the first time: the iron-hulled, full rigged sailing and steam ship, RMS Oceanic. It set new standards in transatlantic comfort and proved immensely successful for White Star (whose fleet would later include the Titanic) and Thomas’s fortunes. In 1887, he commissioned the ‘go to’ architect of the day, Norman Shaw, to design his large new mansion, Dawpool, of which The Clock Tower is a remaining part.

The Clock Tower displays classic Shaw touches such as late medieval arches and embattled parapets (features it shares with Shaw’s earlier Swanscombe Church in Kent) plus Arts & Crafts rooflines and even Queen Anne influenced dormer windows. These are common across a prolific portfolio which ranges from the Flora Fountain in Mumbai to London’s first ‘garden suburb’, Bedford Park, as well as those shown below.

Originally built as stables to Ismay’s Dawpool, the Clock Tower was converted to a family home some 50 years ago. It outlives the main house which Ismay’s son – who survived the maiden voyage of RMS Titanic – declined to occupy and which was eventually demolished in 1927. The Clock Tower is currently being marketed by our Chester office at a guide price of £1.25 million.

RMS Oceanic

New Homes & Developments

THE RACE TO ZERO

‘Net zero carbon’ is the aim of the government’s Future Homes Standard, and of the 65% of local authorities to have declared a climate emergency and, increasingly, of the buying public. How might this affect new homes?

Main photo: Low volume house builders are at the forefront of architecturally innovative, low carbon design. £2,295,000 guide (Alderley Edge)

Right: Kent £960,000 guide (Canterbury)

The energy performance of new homes en masse – dominated by the big house builders – has changed little since zero carbon targets were scrapped in 2015 to encourage more building. That looks set to change as numerous pressures push for far higher energy standards. One change promised in the Future Homes Standard, is the banning of new home oil and gas fired heating systems from 2025. This will force builders to focus on passive systems (house designs which minimise the need for heating and cooling) on all-electric heating, and on renewables such as heat pumps and solar panels. Addressing the common issue of overheating, the new standard will also require better ventilation, including heat recovery, which sounds healthier, as well as less wasteful.

MORE ULTRA-MODERN HOMES

Low carbon needs will accelerate a trend for contemporary-style houses for which large sections – wall panels, bathrooms and even whole storeys – are built off site. Safer and faster to construct, the combined forces of fashion and low carbon might see such methods end the centuries-old dominance of bricks & mortar house building in the UK.

MORE RE-USE

At the same time, we should see a growth in new ‘old’ homes. Minimising embedded carbon favours the re-use of existing buildings. They will need to be suited to low carbon day-to-day operation, but some, such as the coastal fort shown below, sheltered by the ground on one side and its thick, insulating walls on the other, have a head start there.

MORE SMALL BUILDERS AND GREATER VARIETY

The NHBC reports that the number of UK firms building fewer than 100 units a year has fallen by 85% in a generation and now accounts for just 12% of all homes built. Yet smaller businesses are often best placed to tackle oneoff conversions, renovations and brownfield sites. Of late, smaller builders have also led the field in lower energy design and higher quality. Incentives for them to invest must be part of the answer to low carbon demands – and the demand for beautiful new homes.

HELP TO BUY ENDS MARCH 2021

The scheme which provides buyers of new homes with a state-backed 20% loan (40% in London) and which was launched in 2013,

Below: Some regeneration schemes, such as this south coast fort, have inherent low carbon structures. (Winchester).

Above: The chart shows great differences in relative housebuilding volumes across the country.

Below: Kent, from £975,000 (Cranbrook)

ends in its present form in March 2021. From that point, having supported over 350,000* home purchases, it will be restricted to first time buyers only and be subject to regional price caps. It will close completely in 2023.

Whilst few small house builders signed up to the scheme, Help to Buy has been central to the success of the major house builders over the last decade, including London after the loan limit within the capital was raised to 40%. However its withdrawal will, in our view, have limited effect, especially in the higher quality market, being more than outweighed by record low fixed interest rates and lower minimum deposit requirements. Indeed, buyers able to take advantage of these factors and Help to Buy are in an unusually good position. Get it while you can!

MOVING TARGETS

Rapid change is the order of the day as Coronavirus impacts develop. Here are some key points at the time of writing.

MORTGAGE HOLIDAYS

When the mortgage repayment holidays scheme was announced, the government stressed it would not have an adverse effect on borrowers’ credit reports. Even so, having spoken to lenders, it is clear to us that, if you require new finance in the near future, a repayment holiday will make your application less attractive. Switching to interest-only, or remortgaging elsewhere, might be better.

STRICTER MORTGAGE CRITERIA FOR SELF-EMPLOYED

Metro Bank has announced that self-employed applicants will need to “demonstrate the sustainability and profit of the business”. Details are not given, but the intention is clearly that applications from the self-employed will be subject to more rigorous assessments. HSBC have made a similar announcement and we expect others to follow suit. Indeed, lending criteria is tightening across the spectrum, with most lenders now excluding bonuses, commission and overtime as an eligible sources of income for all bar NHS employees.

RATES RISE ABOVE 1% FOR TRACKER MORTGAGES

The best rate for tracker mortgages has risen dramatically from 0.84% to 1.24%, eroding any gains from the two Bank of England emergency rate cuts. This fits into the pattern we are seeing of lenders looking to de-risk. Unlike after the 2008 financial crisis, banks have liquidity and can lend. Their desire to increase margins indicates their longer-term view of the market and the stress it is going to be put under. This makes fixed rate mortgages a better option for borrowers.

For independent advice, contact Private Finance on 0870 600 1650 or jackson-stops@privatefinance.co.uk. www.privatefinance.co.uk

*National Audit Office / MHCLG

Kennedy QC is one of the UK’s most distinguished lawyers. A frequent broadcaster, author and journalist on law and women’s rights, Helena is currently Director of the Institute of Human Rights at the global lawyers organisation, The International Bar Association.

IS WHERE THE HEART IS Helena Kennedy QC

I have the great luck of living in Belsize Park in London in a white stucco Victorian family house which was once the Rectory for St Saviour’s church. This is my home, the place to which I returned after trials at the Old Bailey and where I now find solace after trips to refugee camps. It is the place my husband and I bought from the psychiatrist, RD Laing, in 1986 when we married. It is a place of love where our children grew up and where we enjoy gatherings with our family, and with our friends. It has been the scene of many special events over thirty-odd years and is now the store of our lives’ possessions; mainly books and photographs and pieces of art we love. It is worn at the edges, as real homes usually are.

It is a far cry from the place I called home as a child. I was brought up in a tenement in the Southside of Glasgow; a two-room & kitchen with no bathroom. Four children somehow crammed in this tiny place. We were gloriously happy and unaware how tough this must have been on our parents. My mother went to the Public Washhouse to do her weekly wash, where we were also taken to be bathed, sitting on the floor reading or playing in the cubicle, while she soaked in the luxury of hot steaming water before she dunked us all in, one at a

time. That small apartment was home until, when I was ten, we moved to the council house which was home until I flew the nest to study.

I like home building, creating a sanctuary as well as a welcoming space. During forty years of practice at the Criminal Bar, I visited many prisons and saw how longing for home and the loss of that special place, and all it stands for, was a terrible punishment. People yearned for home. They waited, counted the years and days. Sometimes, it was no longer waiting for them.

Now most of my work involves travel to places of conflict and war. I see the impact of gross inhumanity on those who have seen their families slaughtered and who have themselves suffered unimaginable tortures. They are displaced from home. They wonder if they will ever be able to return to the places of their memories and happiness.

Home is less a place of bricks and mortar, than a space of memory and feelings, of freedom and contentment. It is the place to which our hearts will always return. It is where we feel safe.

Baroness Helena