For the first time in 30 years, London’s population is falling. According to the government-funded Economic Statistics Centre of Excellence (ESCoE), since the outbreak of the pandemic, London’s population may have shrunk by as much as 700,000.
how the pandemic changed rents in London
In 2020 London was the only region in the UK to register an increase in housing supply, with the majority of this coming from apartments. Many owner occupiers sold their apartments in order to trade up to larger properties further out from the capital with more outside space. At the same time, many investors took the decision to sell amid fears of forthcoming increases to capital gains tax. Clearly both of these causes of increased supply in London are as a result of the Coronavirus and the government’s lockdown policies.
Rents in London dropped by 8.3% in 2020 (Hometrack Q4 2020 Rental Market Report). Yields achieved by Landlords in London were already weak before the pandemic. For landlords with high LTV mortgages, this drop may result in them operating at a loss which could lead more to sell their rental properties.
HOUSE PRICES in london: higher or lower?
From the 31st March 2021 there will be a 2% surcharge in stamp duty applied to overseas investors to the UK property market. At the same time, the stamp duty holiday is due to come to an end. The combined impact of these two changes to an overseas investor purchasing a £500K property is a £15K stamp duty bill before 31st March and a whopping £40K stamp duty bill after. Ouch!
According to Zoopla, London house prices have increased 3.67% in the past 12 months. But if we narrow that down to Prime Central London prices are seen to have dropped by 1.8%. London still has by far the highest average house prices in the UK.
There is a lot of negative sentiment around property investment in London currently. The real question here seems to be whether this trend will continue or if prices will begin to pick up. There are those who believe the impact on London businesses and the way we work brought about by the pandemic will be long lasting and could lead to more downward pressure on house prices. This coupled with Brexit, some argue, may even lead to a crash in the medium term.
a bright future for the housing market?
However, the government seems to be doing well with the vaccine roll out and lockdown restriction look set to be slowly eased through Q2 which should help to strengthen the market. Add to this a strong mortgage lending market and the fact that interest rates look set to remain close to zero for the foreseeable future, and you may argue that now looks like a great time to buy for the brave investor.
The impact of quantitative easing (QE) on the housing market should not be overlooked. Over the past 12 months the Bank of England has purchased £895 billion in government bonds. Often described as ‘printing money’, what QE really means is an erosion of the true value of people’s savings. If the money held in people’s bank accounts is worth less in real terms over time and interest rates are hovering around zero, it seems now is the time to take on cheap debt and acquire assets such as property.
London is a truly international city and historically does tend to exceed expectations when it comes to house prices. Although there is a lot of uncertainty being felt across the London market, I strongly suspect we will begin to see a return to life as normal over the coming months and years and this could start to see London house prices rise sharply.
House prices are cyclical in nature, and tend to follow a roughly 18-year cycle of a crash, followed by moderate growth, followed by stabilisation and finally aggressive growth. This appears to have started in 2007/8 with the crash the followed the global economic crisis. Where we are now, could potentially be at the start of the aggressive growth phase. You can read more about the 18 Year Property Cycle here.