Pimlico, London

What Will Be the Effect of Covid-19 on the Pimlico Property Market?

So now we are almost a month into lockdown, yet can you believe it I am still speaking with agents from all over the UK, and I do not jest, properties are still being sold and let even in these unprecedented times. We agreed a sale to a Hong Kong buyer yesterday, close to asking price, after showing the property using videos and virtual tours. Yet, I would like to address the question I have been asked many times recently “What will be the effect of Covid-19 on the Pimlico property market in the short, medium and long term?”

These are obviously unchartered times, yet we can look back in history to give us clues and more recently, the bounce back that is happening in China (and their property market). The Covid-19 situation will touch all parts of the Pimlico and UK property market, and so in this article, I will be considering its impact on Pimlico property prices, transaction numbers (i.e. the number of people that move home), Pimlico buy to let landlords and finally tenants and the rents they pay.

The Three Issues with the Virus and the Property Market

The first issue has to be the lockdown itself. Limitations on society’s capability to go about their normal working life will hinder the house buying/selling process. The practical difficulties of moving home and expediting the property sale; from the viewing itself, the Energy Performance Certificate being carried out, the surveyor checking the property for the lender etc., are all issues. Yet the estate agency and legal industries are coming up with some innovative solutions, from virtual viewings to legally watertight delayed completions, where the old owners stay in the house under licence during the lockdown, and the move will take place after the lockdown period.

Secondly, the UK housing market has never liked ambiguity or uncertainty and this virus will play a part on people’s feelings and sentiment towards moving home (or not).

Thirdly and finally, there is the issue with the money people have, be that wages, whether they have a job (or not) and their overall affluence, on the back of the 29.4% stock market decrease in the last two months (correct at the time of writing this article).

The Background Economics

The economy drives everything including the housing market – and the overall measure of the economy is the Gross Domestic Product figure or the GDP (the GDP is basically the total value of all the goods and services created by the whole UK economy in one year and it currently stands at £2.15 trillion).

Looking at what has happened in China, most economists believe the UK will experience a short, yet sharp economic shrinkage in Q2 2020 with GDP set drop by 4% to 7% in the one quarter depending on the extent of the lockdown. Then GDP is expected to level out in Q3 2020, and then a significant ricochet (how significant depends who you listen to) in Q4 2020/Q1 2021.

Now putting politics aside, I have been impressed with Boris Johnson’s response with wide-ranging support for the UK economy and businesses, and whilst it’s far from perfect, help has been in the guise of the Bank of England reactivating its Contingent Term Repo Facility increasing liquidity and keeping the money markets going (important as that was what the issue was with the Credit Crunch), business grants and Government backed loans, together with telling lenders to take a compassionate line to those unable to make mortgage holidays and finally the furloughing of staff, thus allowing a quicker recovery in the economy.

What Will Happen to Pimlico Property Values?

There are a few doom-monger economists predicting Armageddon, yet I feel a lot of that is to get column inches in the newspapers. The Pimlico property market is less exposed than it was in the previous four historical property crashes in 1972, 1979, 1988 and 2008. This is because of the following reasons..

  1. Before each of the four crashes, there had been a significant upward spike in property values prior to the crash. We have not experienced that over the last 12 months.
  2. Mortgage interest as a percentage of household income (nationally) was a massive 32% in 1988, 18% in 2008 – yet now it stands at just under 8% (because interest rates are so low).

This is all assuming we don’t have high unemployment. Yet historically, it has been proved house price falls are not caused by high unemployment. It is in fact, that it happens the other way round, that a housing downturn can (not always) create unemployment – yet with the Government furloughing people – this shouldn’t be such so much of an issue.

The value of an average Pimlico home currently stands at £1,672,900

As I will explain in the next section, the biggest effect will be on transaction numbers, not on property values. I suspect in the summer there will be some Pimlico homeowners who will want to sell at all costs, and not care what price they achieve. Savvy property buyers will swoop on those properties and drive a hard bargain, meaning there will be some short-term localised reductions in what properties sell in the summer for those that want to sell at any cost.

Yet, these reductions will artificially amplify the property value indexes in a downward direction in the autumn (the ones the newspapers mention when they talk about property value changes) because they will be based on the very low levels of property transactions that will take place in the summer (because there is always a lag). Interestingly we have seen this many times over the years because just about every spring for the last 20 years, we have often seen negative or very subdued figures in the House Price Indexes in the months of January/February. This is because of the lack of property sales on the run up to Christmas a few months before. To give this all some context, property values in Pimlico are 53.5% higher than 10 years ago – and nobody was complaining about those. To give you an idea what that is in pound notes …

The average Pimlico home has risen in value by £582,700 in the last 10 years

 The swiftness of recovery in the autumn/winter from that point will depend on the state of the wider economy. With the measures (mentioned above) implemented by the Government, household incomes should continue to remain steady, and whilst holidays and luxuries may be shelved for a year, those Pimlico people who have been locked up in their Pimlico homes for weeks on end, might just consider making that move later in 2020, taking advantage of the ultra-low interest rates. This in turn ought to encourage a return to sturdier levels of house-price growth in the medium term (2021/2 onwards).

The Number of People Moving Home in Pimlico Will Significantly Drop in 2020

I foresee the number of people moving home (i.e. the number of household transactions) in Pimlico will significantly drop in 2020. This will only really affect the pockets of Estate Agents (as they charge their fee when people move – so if less people are moving, they will earn less) and the people associated with house moving.

Even with virtual viewings and creative legal work, the number of property transactions will be considerably obstructed over the next couple of months. Interestingly, in the Chinese cities that removed the lockdown first (in the middle of March) I have read in the press the number of property transactions has already bounced back to around half of the medium-term average after only three weeks!

This was caused by people delaying their move because of the ‘B’ word (Brexit) over the last 12/18 months, which interestingly saw a massive upsurge with the Boris Bounce in December/January and February.

Worse case scenarios suggested by economists state transactions will drop to 20% of the normal 10 year average number of transactions until the end of Q3 2020, return to 65% by Q1 2021, increase to 100% by the end of Q2 2021 and then 120% in 2022, yet most sensible economists (and often those that stay out of the limelight and don’t go chasing headlines), believe transactions will reduce to 45% to 50% of the 10 year average until the end of Q3 2020, improve to 80% in Q4 2020 and 100% by Q2 2021 with potential for higher transactions numbers in the order of 110% to 130% in 2022.

It all sounds rather grim doesn’t it, until you dig deeper…

Remarkably, it must be stated the number of property transactions over the last 12 months in Pimlico are only at 42.1% of the 10-year Pimlico average … and this was before Covid-19

In the last 12 months, there have been 270 property transactions in Pimlico, compared to a 10-year average of 642 per year

Yet, let’s not forget, these predictions are from the 10-year long term average, and as it can quite clearly be seen, transaction levels are already at a low, even without Covid-19 and nobody was complaining about that apart from estate agents and removal vans!

With the number of Pimlico people moving being held back, I would anticipate seeing a build-up of supressed demand for Pimlico property from Covid-19, on top of the pent-up demand from Brexit, especially with many Pimlico families realising their Pimlico homes aren’t large enough to contain them as the lockdown experience will push many Pimlico households to move in late 2020 or possibly 2021 …and as every economics student knows, when demand outstrips supply (because we can’t all of a sudden build more houses), prices go up.

How Will This Affect Pimlico First Time Buyers, Those Trading up, Downsizers and Landlords & Tenants?

FIRST TIME BUYERS – I believe the banks will be a little more wary when lending money to first buyers with their need for large percentage mortgages. The demand for the Help-to-Buy Scheme has been increasing year-on-year, yet its pace of growth has been declining in the last couple years – I foresee demand accelerating in the later parts of 2020. There could be some good deals to be had from new homes builders looking to release cash in Q3 and Q4 later in the year? Maybe the Bank of Mum and Dad might be able to help, yet they too will be stretched, although they might be able to release equity down the generations to their children and grandchildren (see the downsizers section).

TRADING UP – Many Pimlico homeowners in their starter homes will be going stir-crazy in their smaller homes, and with interest rates at ultralow levels, some Pimlico homeowners might forgo holidays and entertaining, and consider putting their weight and finances into moving up market in Pimlico. That might also be easier, if the Pimlico downsizers start to move as well.

DOWNSIZERS – There are many Pimlico retired people, rattling around their large Pimlico home, with their children having flown the nest and possibly moved away years ago. These Pimlico people don’t need to move, and so are considered ‘optional home-movers’ – yet the Covid-19 crisis could be the catalyst to make them finally move to be nearer their family around the UK – releasing good sized Pimlico family homes onto the property market for the ‘Trading Uppers’ to buy.

LANDLORDS & TENANTS – I suspect there won’t be many Pimlico tenants moving in the next three to four months. Tenants have the peace of mind with a cessation on evictions until the summer and buy-to-let mortgage payment holidays for buy-to-let landlords whose tenants are in financial difficulty (note the tenants have to give proof to their landlord that they are unable to pay with their applications to Universal Credit etc., etc.,). There might be small reductions in average rents, as some Pimlico landlords undertake to help their tenants in these chastened financial times, yet for most people, rents will continue to be paid, making no major impression on rental prices in 2020.

Let’s not forget, the level of average rents is directly related to tenants wages and I can’t see why this relationship between rents and tenants wages should break after Covid-19, so as wages are held back in the latter parts of 2020 the growth rents over the next year will be subdued. Finally, those Pimlico buy-to-let landlords sitting on cash might be able to bag a bargain in the summer from a desperate seller, before normality returns in Q3 and Q4 2020.

Conclusion

We are in unchartered territory, yet for the reasons explained in this article and, assuming there are no other seismic shocks in the coming weeks and months – in a few years’ time – this will be seen as a bump (albeit a rather big bump)  – another part of the roller coaster ride of the UK and Pimlico property market.

Wellness tips for working from home

Adjust your home office with these tips to keep you happy and healthy

As we all do our part to stay home and stop the spread of the coronavirus, working from home has become the new normal for most of us. However, while working from home certainly has its perks, being cooped up inside – not to mention the added stress of the current situation – means that we have to take extra care of ourselves. Read on for some advice on how to stay healthy, physically and mentally.

1. Build a routine

Now that your home is your office, it’s important to set boundaries for your work and private life. However, it isn’t just the risk that you’ll end up watching Netflix all day. Without clear boundaries, you could end up working late into the night or seven days a week. Instead, schedule “office hours” and stick to them, starting and ending each day at the same time. Go to bed at a reasonable hour so that you get enough sleep and are able to wake up at your usual time. Then, start your day with a strong morning routine to get your head in the game.

2. Create an ergonomic workspace

For a lot of people, working from home means being able to be less formal, but slouching on the sofa is not going to do your neck or your back any good. Save yourself the pain and dedicate a corner of the kitchen table to a work-space if you don’t have a separate room you can use for an office. You should make sure that you aren’t sitting too low or too high for your desk, and ideally your elbows should be bent to 90 degrees. If your chair isn’t adjustable, sit on a pillow or use a footstool to take the pressure off your lower back.

3. Move every hour

With gyms and group workouts cancelled you have to be a little more creative about getting enough exercise. If you have exercise equipment or weights that have been gathering dust, brush them off and put them to work. If not, search YouTube for yoga or exercise videos, or do some old-school fitness with sit-ups or push-ups. And don’t sit at your desk all day. Get up every hour and move, whether that’s walking around the room, stretching, getting a drink of water or even using the toilet. Remember that several short breaks throughout the day will be more beneficial than longer but less frequent break.

4. Mind your snacks

Just as we have to resist the magnetic pull of Netflix, we have to watch what we eat. You probably have a kitchen fully stocked with food and given the uncertain times we’re living in much of that may be comfort foods and sweet treats. Remember the occasional indulgence is fine, but you should stick to your normal healthy meals. Eat your meals on a regular schedule instead of snacking all day so that it’s easier to pay attention to what you are eating. And don’t keep snacks by your desk, because as you get caught up in work you won’t notice when you finish the entire bag of chips!

5. Get some fresh air

Not everyone is able to get out and get some exercise, but a little fresh air can do wonders for your mood and your energy level, even if it’s cold. One side effect of everyone staying at home is that air quality has improved for many communities. So bring in a fresh perspective: open the window for a few minutes, stick your head out and take a deep breath. A few minutes of crisp, fresh air can help you feel more alert and awake and ready to take on the day.

6. Skip the email and make a call

While you’re in isolation, you might go all day without speaking to anyone unless you make an effort, and that lack of human interaction can really harm your mental health. So, if you have short work questions or project updates, take some time to pick up the phone and have a real conversation. Hearing someone’s voice is big boost for your out-look, but a phone call can also be much more productive than a long chain of emails. Of course, everyone’s sched-ules have changed, so ask if colleagues and customers are free, and keep your conversation on topic or ask them to call back when they have more time.

7. Be kind to yourself

Finally, remember that some days will be productive and successful, but other days you’ll feel as if you’ve done nothing useful. Set realistic expectations, and don’t beat yourself up if you can’t meet them. Being kind to yourself will help keep you calm but will also make sure that you have the energy you need to take good care of your family. Acknowledge that you’re doing your best during a difficult time and remember that you get a fresh start tomorrow.

INTEREST RATES AMONG THE LOWEST IN HISTORY

While the interest rate increased from 0.25% to 0.5% in November last year, it still at one of its lowest values in history and is highly-favourable for potential homeowners who are trying to get their foot on the housing ladder. While the marginal change in the interest might have some consumers tightening their belts slightly, historically 0.5% is still one of the lowest interest rates the British home buyer has had to endure.

From 1971 until this year the interest rate in the UK has averaged 7.59%, reaching an all-time high of 17% in November 1979 and the record low of 0.25% in August 2016. In July 2007, the official bank interest rate was 5.75%, which means that from that date up until November last year, the bank’s base interest rate had dropped by 5.5%. Even with the 0.25% increase, homeowners who purchased their property with a mortgage within the last decade are paying less for their home now, than they did when they first bought it. Bearing in mind that banks will generally grant mortgages at an interest rate around 2% to 3% above the base rate, on a repayment mortgage of £200,000 over a period of 25 years at 7.75% (base rate of 5.75% plus 2%), the monthly repayment would have been £1,511 with a total repayment of £453,149. The same mortgage at an interest rate of 2.5% (base rate of 0.5% plus 2%) would cost £897 a month with a total repayment of £269,204.

While there are markets such as prime central London, where the majority of home sales are cash buyers, for the most part, prospective homeowners around the country are dependent on mortgages to purchase a property. A low-interest rate will help build consumer confidence and increase their chances of getting into the market. High-interest rates widen the gap for prospective homebuyers to meet the necessary criteria that mortgage lenders require for the applicant to obtain the finance. They also mean that applicants may have to opt for a lower mortgage amount, which could result in them having to choose a smaller home or perhaps one outside of their ideal location. Very often, high-interest rates push lower-income earners out of the market completely.

Another advantage of the current favourable interest rate is there may be some room in  consumer’s budgets to pay extra into their mortgage to reduce the term of the loan and pay the property off faster. This will, however, depend on the lender and their policies and fees with regard to overpayment. Most lenders will allow homeowners to overpay 10% per year if they are still in their introductory fixed, tracker or discount period. Usually, once this period has passed, you will be able to overpay as much as you want, but again this depends on the lender and their policies, so best to clarify beforehand.

At the moment the UK is among the top fifteen countries in the world with the lowest interest rates. While there are talks of the interest rate going up in the future, for the time being, UK citizens should make the most of the current circumstances and place themselves in the best possible position to get into the property market.

 

Factors that will influence the property market in 2018

It is fair to say that 2017 was a year of much change in the housing market, from the abolishment of Stamp Duty for first-time buyers who are looking to purchase a home up to £300,000, to the new way that landlords will be taxed on their portfolio. One thing is for certain, and that is that the government is doing all they can to ensure that everyone has an opportunity to own a home for the first time. The year was geared towards encouraging first-time buyers to get in the game while getting landlords to rethink their portfolios and perhaps releasing some of their current properties into the market.

Here’s a brief look at the things that happened in 2017 that will influence the market in 2018:

Stamp Duty done away with for first-time buyers

The government’s decision to scrap Stamp Duty for first-time buyers who wish to purchase a property up to £300,000 was one of 2017’s biggest changes in the housing market. In addition to the exemption, rates have also been changed. Now, first-time buyers making a property purchase up to £500,000 will pay no Stamp Duty on the first £300,000 and 5% tax on the amount between £300,001 and £500,000.

New taxing for landlords

Last year also saw the introduction of the section 23 taxation change that will impact landlords. The change will be phased in until 2021 and will mean that landlords will not be able to claim tax relief on their mortgage payments from 2021, reducing by 25% each tax year until then. The change will effectively push landlords into a new tax bracket, which will essentially eat away at potential profits.

Interest rate has gone up

For the first time in a decade, the base rate of interest has increased marginally from 0.25% to 0.5%. The increase means that mortgage repayments will be slightly more expensive going forward.

A change in the rental landscape

Over 2017, the build to rent sector has seen growth, which has created an alternative type of accommodation for tenants. Many of the build to rent developments are owned by institutions such as pension funds and are then let out by letting agencies. At the moment, approximately 55,000 build to rent properties exist in London. Depending on the development or site, the developments offer residents features such as gyms, communal areas and other sought after amenities.

House prices are steady

In spite of both the economic and political challenges of Brexit, 2017 showed that the London property market is robust and house prices have remained steady. According to the UK House Price Index, the yearly average house price growth is up to 5% with 29 of the 32 boroughs in London showing house price growth since January 2017. Steady property prices, favourable interest rates and an increase in inventory are positive factors for buyers in today’s market.

An increase in affordable housing

According to recent budget announcements, the UK government will be focused on increasing the number of affordable homes available to buyers. A commitment has been made by the government to build more affordable housing, designating £44 billion to build new homes, with an additional £400 million to improve existing estates.
Approved schemes will also be pushed ahead as soon as possible to help relieve some of the pressure currently placed on council waiting lists.

With all this change during 2017, it will be interesting to see what we can expect of the next twelve months.

How the interest rate hike could impact the property market

The Bank of England Governor, Mark Carney announced in November 2017 that the interest rate would increase from 0.25% to 0.5%. This marks the first time in a decade that the central bank has hiked the rates, which are currently at historic lows.

The rate hike is likely to place further pressure on the market as mortgage costs go up and lending conditions become further constricted.

While rate hikes will have a lesser impact on those who have the cash to purchase a property outright, existing mortgage holders and potential buyers wanting to get their foot in the door will be hardest hit. According to Zoopla, the average price paid for a home in London is £621,881. Under the previous prime interest rate of 0.25%, the mortgage repayment over a 25 period was £2,139. With the hike to 0.5%, the monthly mortgage repayment will increase to £2,205 per month, which means that homeowners will pay a further £20,036 on interest over the term of the loan.

Based on the example, an increase in the monthly mortgage repayment of £66 a month is not substantial. However, it is the compounded effect of a rate hike on all other debt that the homeowner is currently servicing. Many people have high debt levels because interest rates have been so low for so long. As interest rates rise, it will be more and more difficult to service the debt and other household payments. Added to this, if we enter into a rate hiking cycle, we may see more than one increase.

Another effect is that it will be more difficult for potential buyers to show the necessary affordability levels to get their foot on the first rung of the property ladder. Higher interest rates mean that buyers will qualify for lower mortgage amounts. Essentially this means that they will require a larger cash deposit to be able to afford the same property. Before any further rate increases occur, potential buyers should focus on paying down their debt and building as much savings as possible.

Top tips for investing in property

Over the long term, property has proven itself to be a solid asset class in which to invest. However, there are aspects that property investors need to consider before they make a final decision and sign on the dotted line.

Much of property investment success is based on the decisions made at the start of the investment. If possible, it is best to try and make your money right from the start of the deal. How is this possible? By finding properties that are listed at values below market value. To know whether a property is below market value requires investors to do their due diligence and research.

Look online

Where do you start? Before going to see a property look it up online and read the agents or seller’s comments regarding the property’s condition and its construction. Also, see how long the home has been on the market and whether there have been any other interested parties who have possibly made an offer. Knowing the seller’s position is also an advantage, as it provides insight into how open they are to negotiation.

Compare apples with apples

Once you have this information, look for other homes within proximity that have recently sold and for how much. Find similar homes that have sold within the past year, ideally no further than a mile away from the home you are looking at. Start with properties on the same road and work out from there. Having an idea of the pricing in the area will provide perspective as to what would be considered a fair market value of homes in the vicinity.  Also, look at the current rentals in the area, particularly if the home is being purchased as part of a buy-to-let portfolio – this will provide insight into the possible expected rental income.

Google Streetview

A great tool to view the surrounding properties and neighbourhood is Google Streetview. From the comfort of your home, you will be able to get an idea of the amenities in the nearby area, as well as the overall look and feel of the neighbourhood. While they may not be completely up to date, the online images will provide you with a picture of where the property is situated in relation to the town centre, main roads and public transport.

Council information

Another excellent resource is the area’s council planning portal, as this will provide a planning history on the property. Knowledge of any failed plans will give you valuable insight into what may or may not be done to the property to add value.

Purchasing investment property can be a highly lucrative endeavour provided the research is done, and the investor goes into it with their eyes open.