Brexit and SDLT 'causing market to stagnate' warns property specialist

A downbeat report from property investment specialist London Central Portfolio says “there are very few causes for optimism in the domestic property market” thanks to a reticence of buyers to act until Brexit and wider economic uncertainty are resolved.

LCP’s chief executive Naomi Heaton warns: ”There are very few causes for optimism in the domestic property market, where real terms, inflation-adjusted, house prices are no higher than they were in 2007.”

She continues: “Affordability remains heavily constrained in a post-Mortgage Market Review world, where wage growth struggles to out-pace inflation. Artificial stimulation of the market through Help to Buy and first-time buyer incentives has supported the market but there is a general reticence amongst up and down-sizers to commit at this point. 

“The continued lack of a defined exit plan from the European Union, combined with economic uncertainty and a number of punitive tax changes targeting the buy tolet sector, have caused the market to stagnate.”

As has become the case over many months, the market is at its most challenging in London where LCP has revealed a theory as to why prices appear to be rising in some circumstances, despite other measures - particularly transaction totals - suggesting the market is in poor shape.

Prices in Prime Central London now stand at £1,965,774, which on paper show annual price growth of 2.6 per cent.

But Heaton warns: “This does not fully represent the position seen on the ground. Whilst there is very little financial distress in the market, those selling now tend to be doing so because they have to, typically as a result of life changes like death, divorce or marriage. This is leading to price reductions as the vendors have to accept what buyers are prepared to offer. 

“However, higher value properties were most impacted by the recent changes in tax legislation and prices here have fallen further, faster. As a result, the discounts at this end of the market are proving more compelling, driving a higher proportion of transactions to go through which are above the average property price. This creates a statistical increase in average value, despite real values of the underlying assets falling.”

LCP’s analysis of Land Registry figures show that Prime Central London transactions have been continually falling since the flurry of activity at the start of the year and now stand at 873 in July.

This is a drop of 6.7 per cent for the month, making it the sixth successive fall. On an annual basis, transactions have fallen by 8.3 per cent to levels which, says Heaton’s firm, were last seen during the global financial crisis a year ago.

To make London’s woes worse, Heaton says the capital’s housing market has now become essentially domestic rather than international, meaning the interest rate rise could have a greater impact on the level of transactions “as home ownership becomes even more expensive in a price sensitive market.”