Demand - Biggest Winners & Losers

of London being a relatively ‘cheap’ option compared to other prime central urban areas around the world as well as the weak pound. Moving away from central, the capital’s core prime market saw a decline in buyer demand in the fourth quarter of this year, falling by -4.1% to 21.4%, marking an annual decline of -5.7% since this time last year. Chiswick (51.7%), Wimbledon (44.9%) and Islington (38%) are home to the current highest demand for prime properties. Meanwhile, the largest quarterly decline in demand for prime London property was in Barnes where demand dropped by -29.7% in the last quarter of 2022, followed by Wandsworth (-26.7%), Canary Wharf (-13.1%), Highgate (-11%), and Clapham (-8.6%). And while the race for space that hit the market during and after the main period of the pandemic may have started to subside, buyers with clear ideas of what they want and where they want to live are still moving with intent.

Country Living

Outside the capital, things are changing too. The heavily reported urban exodus to the countryside and coast appears to have slowed down and even reversed in some cases. The working from home trend that saw many commuters extend the boundaries of their search seems to be in the process of reversing. There is currently a “slow but sustained return to the workplace” according to Laura Landells at Remit. This could ultimately lead to some recent purchases being re-assesed once the drag of commuting is re-instated.

Meanwhile Rightmove reports that coastal towns in the south of England, Lake District and mid-Wales all recorded a greater slowdown in demand and sales over 2022 than other areas. The report points to the initial wave of people looking to work from home, gain more family space and retirements has run its course for the moment.

So 2023 may well see a relative boom for urban areas. According to Rightmove, Bradford, Swindon, Coventry, Crewe, Milton Keynes and Southend are all registering above-average demand. All of the above have their own employment options, but crucially they boast good connections to much larger cities like London, Leeds, Manchester and Birmingham.

Which combined with many white collar workers having the option to work from home for at least part of the week, makes them appealing options.

Struggles With Rentals

Unfortunately, while there are some signs of positivity in the rest of the market, the rental market continues to suffer. In London, the situation is particularly acute. In October 2022, data from SpareRoom, showed the number of renters looking for rooms in the capital had tripled since the start of 2021.

Yolande Barnes, chair of University College London’s Bartlett Real Estate Institute, told Bloomberg that the spike was largely due to the end of furlough, easing of restrictions and the young professional class returning to the city. “The archetypal young professional, who worked at home from their parents’ place and saved money on rent, is now going back to living in real places,” said Barnes.

The problem is, there simply isn’t enough property, which results in seven times the amount of people looking than there are rooms available. Why has this happened? Largely it’s due to private landlords leaving the market either because they’re making a loss or fear a loss as mortgage rates continue to rise. And those that do stay in the market are increasing rents, with Foxtons reporting average London residential rents climbed steadily throughout 2022 and finished the year 20% higher than at the end of 2021. Demand has further increased due the rise in mortgage costs stopping many would-be first time buyers from moving up and making space in the rental market.

A combination of a mass return to the city, poor government legislation, and some bad actors in the landlord community have effectively removed the first rung of the property ladder. A recent open letter to Michael Gove, from signatories including members of the National Residential Landlords Association and The Lettings Industry, says plainly, ‘property portal data shows that supply is down 46% compared with the five year average.’ The letter goes on to say, ‘rent increases restrict mobility and supply, with

2021 2022 20 tenants frightened to move house for fear of facing even higher rents in a new home. By failing to encourage adequate supply, government policy is directly contributing to the sharp increases in rental prices.’

% London average rental prices increased by 20% from 2021 - 2022.

The fact it seems is that rental property as an investment is no longer perceived to be such a great place. It can be a hassle, plus it ties up large sums of capital, mortgage rates are higher and legislation removes the ability to offset some of these finance costs from taxable profit. Instead it seems that many new wouldbe landlords have simply not entered the market over the last few years - resulting in a tightening of supply. Many see the housing market in general to be over-bought, and small private landlords used to assume that the capital increase in their property would be a hedge against their rental yields. For the time being it seems they are putting their money elsewhere.

So it goes that the property market is treading what could be described as a fine line. Although a full blown crash seems to be off the cards, for the time being at least. There are many powerful forces at work that could push sentiment firmly one way or the other.

46 %

FIVE YEARS

Rental property supply is down 46% compared with 5 year average.

Demand for rental property in the capital, such as this recently agreed let on Markham Street, SW3, remains very strong.