At Aykroyd & Co we have seen a huge uptick in activity over the last few weeks, and it is common knowledge among industry players in PCL that we are all seeing significantly more deals agreed than we did at this time last year, alongside gazumping and competitive bidding scenarios.
Politics has been holding back a bounce, and the latest Brexit delay, with the added uncertainty of a December general election, is no help. Certainty is good for markets, and the political vagaries over the past three years has left the PCL market holding its breath, with both buyers and sellers waiting for something decisive to happen.
This has created a lack of fluidity in the market and a great deal of pent-up demand that is a particular hardship for growing families. Deal, no deal, remain, leave – whatever happens, markets can adjust.
The current political dithering, however, has been stultifying the market and creating something of a stand-off between buyers and sellers, keeping transaction levels low and prices relatively level. Possibly not for much longer.
Basically, buyers know property prices have dropped, and they’re looking for significant price discounts from what they might have paid five years ago. Given the gloomy headlines, buyers aren’t willing to compromise very much on price.
Meanwhile, vendors are reluctant to put their properties on the market given the price reductions. More to the point, there is little pressure on vendors to sell.
During the financial crisis of 2008, there were significant job losses and mortgage pressures. Today we are favoured with historic low mortgage rates and a strong jobs market. This means there are no significant outside factors creating pressure to sell.
Vendors are aware that prices are off - and they have confidence prices will come back up - so unless they have personal reasons driving them to sell, they are sensibly holding.
All this is leading to low stock levels and thus low transaction levels. However, it’s important to remember that the low transaction levels are not a reflection of low demand – far from it.
At Aykroyd & Co, we have had more inquiries in 2019 than in any of our combined 40 years advising buyers in PCL, and many of our clients are qualified cash buyers.
US Dollar buyers are especially motivated, as they are seeing effective discounts of c. 40% when the weak sterling is factored in. Nevertheless, cash purchases are down in PCL over the last quarter. This is because mortgage rates are so low.
What we are seeing here on the ground are UHNWs who are able to buy in cash, choosing to avail themselves of the readily available low-rate mortgages as this is considered more efficient for investment, tax and estate-planning purposes.
There is plenty of demand in the market and there is plenty of cash. There simply are not enough best in class properties available that are sensibly priced. Historically, low stock levels have driven up prices, as they did in 2010. This isn’t happening at the moment, as buyers are not yet willing to come up on price.
However, this could all change very quickly. As buyers begin to see prices rise, they will want to buy immediately, before prices rise even further. We believe the new research from Savills and data from the Land Registry indicate a tentative move in the market in this direction - something we are also seeing first hand at Aykroyd & Co.
We are already seeing bidding wars over the sorts of best in class properties we recommend to our clients – sometimes with the final price coming in at a fairly strong £psf. Indeed, we have yet to have a single clear run at any property transaction this year, with every offer under pressure from competing buyers.
This sort of competition will eventually impact on prices. While we don’t expect another historic 25% bounce in a single year, we do expect a significant price increase in the year following the resolution of the current political uncertainty.
Buy on the sound of cannons
Low supply continues to support prices, while cheap mortgages and the strong jobs market are keeping demand strong. Meanwhile, these same factors are steeling the resolve of sellers. It’s important to remember that prices in London are still only around 5% below the highs of 2017 and are 50% above their 2007 levels before the 2008 financial crisis.
This makes PCL residential property the best-performing asset class in the world over the last 25 years.
Quietly, without mentioning the ‘B’ word, the clients we are working with now are moving decisively to buy. A number of clients, on hold for some months, are back in action, while we have had new clients flying in from Malaysia and America for just a few days to move forward on deals in the £2-10 million range.
These clients aren’t explicitly saying they want to buy before Brexit, but they are talking more generally about the opportunity this moment presents.
It’s a testament to the resilience of London as a global capital that the market has held up as well as it has given the doom and gloom headlines of the past three years. Once these headlines begin to change, we expect to see a very different market. If the market has indeed bottomed out, as new data suggests, the opportunity to buy on the sound of cannons is nearly past.
*Hannah Aykroyd is founder and managing director of prime-central-London buying agency Aykroyd & Co