Like everything else, the highest echelons of the property market in the UK haven't been immune from the impact of Covid-19.
But what does 2021 have in store for the Prime Central London (PCL) market, with Brexit, Covid and the new 2% additional stamp duty surcharge on non-UK buyers (introduced in April) all in play?
Here, we chat to Caspar Harvard-Walls, partner at buying agency Black Brick, for his thoughts on the impact of Brexit and whether the extra tax on foreign investment will make Britain less attractive to overseas buyers.
What impact will Brexit have?
Harvard-Walls: For our clients one of the most significant effects of Brexit has been the strengthening of sterling against the US Dollar, from $1.22: £1 on April 4 2020 to more than $1.35 to £1 today. The change in the exchange rate is not, of course, solely down to Brexit, but for international clients it is crucial and we expect that many of our clients took advantage of the weakness of sterling over the last few years to build a war chest with the expectation that some of this will be allocated on UK property.
As an example, if a buyer bought £1 million worth of sterling on April 4 last year, it would have cost them $1,227,430. At the end of January 6 2021, that £1 million would have been worth £1,360,000 - a gain of more than £132,000 in nine months.
This is especially significant when the gain would more than pay for the stamp duty, including the 3% surcharge if it was a second home, as well as other associated costs for the acquisition.
What is the ongoing impact of Covid on PCL?
H-W: The market in those areas that have historically been primarily influenced by international buyers are quiet and we foresee a year of two halves. The next six months will see very little activity and many sellers will wait until the summer when we expect to see the pent-up demand of the last 12 months have a significant impact on pricing and volumes in PCL.
Have prices fallen and will they continue to fall?
H-W: We expect that only those sellers who have to sell will brave the market in the next six months. Those who can, will wait until travel restrictions are lifted and the number of buyers increases dramatically
Has the impending 2% additional surcharge on overseas buyers (arriving in April) had any effect on demand and activity?
H-W: The impending 2% surcharge is, of course, an impediment but for many international buyers it is inevitable that they will have to pay it as they simply cannot come to London to view properties in Q1 of 2021.
We expect that its effect will be magnified on those areas where international buyers make up a significant proportion of the buyers whilst, as an example, the areas like Barnes or Richmond will feel little or no effect.
Will it make Britain less attractive to foreign investment?
H-W: The UK’s property tax regime in a global context is not extreme and many other major cities are more expensive when you look at the cost of acquisition, holding and selling over a medium time horizon.
It is inevitable that for some buyers any tax rise will be enough for them to hold back on investing into the UK, however we have also seen a number of clients respond to the Covid pandemic by looking at property not just as an asset class but also as a fundamentally important part of the health and happiness of them and their families.
You talk about 2021 being a year of two parts – tell us why this will be the case...
H-W: In the first half of 2021 we can expect more activity from the domestic buyer – looking for generous gardens, good parking, a vibrant high street. But by July, I would expect to see the international buyers coming back with a busy summer ahead.
This means there is a special window right now, where those wanting to buy in Prime Central London have a six-month window of opportunity without the usually competitive global market.