- Cash buyers dropped from 74% in 2011 to 49% in 2012
· Proportion of mortgaged buyers rose from 26% in 2011 to 52% in 2012
· Diminished bonus culture and abating Eurozone fears drive change in buyer profile
· Prices rises of 4% forecast in 2013 for prime Central London as period of lower growth begins
· Average capital values expected to rise by 22.1% over the next five years
Public and political pressure to rein in bonus culture and a lacklustre lending performance from the banks, has dramatically changed the way property purchases are being financed in prime Central London, reveals Cluttons in its Residential Property Forecasts Q1 2013. The proportion of mortgaged buyers rose from 25.8% in 2011 to 51.8% in 2012, while cash buyers dropped from 74.2% in 2011 to 48.8% last year.
The continuing taboo surrounding bankers’ bonuses, along with the Chancellor’s looming threat of a break up of the banks into separate retail and corporate entities, has translated into a huge reduction, or in some cases eradication, of bonus schemes. This trend is expected to intensify over the coming months, particularly if the hotly debated EU bonus cap becomes law.
In addition, concerns of an all out Eurozone collapse, which drove investors to plough cash into the ‘safe haven’ of the London property market throughout 2012, have abated. This, combined with the reduction in cash bonuses, has dented the appetite of the City’s young professionals to make Central London residential investments and has resulted in a significant reduction in the number of registered cash buyers in the prime Central London market.
However, overall demand remains strong and first time buyers and other mortgaged working households have stepped into the market with growing confidence, competing for a scarce number of assets. Even more secondary properties are seeing heightened interest in some submarkets, particularly those outside the prime core such as Clapham, Islington, Highbury and Canary Wharf, as frustrated buyers close deals on homes with the most ‘upgrade potential’.
Central London’s advancing transport infrastructure, including the extended East London Line, is playing a part in opening up new areas to buyers, such as the submarkets that sit between the City and CanaryWharf. International investors also continue to target London residential property, capitalising on the weakness of Sterling, further depleting supply.
Sue Foxley, head of research at Cluttons, says:
“Banks are facing pressure from regulators, Government, shareholders and the public to clean up their act, which has resulted in a softening in the big bonus culture. The severely limited supply of property in the prime Central London market means that that this has had limited impact on prices to date, with overall demand remaining healthy. However, we are seeing a shift in the profile of buyers as first-time buyers and mortgaged households have stepped into the market.”
Cluttons predicts that prime Central London will record a 4% increase in prices this year, followed by a further rise of approximately 4% per annum between 2014 and 2017. This compares to a marginally negative (-0.3%) wider UK housing market this year, with modest growth of 1% expected in 2014. The prime Central London lettings market is also entering a phase of lower growth, with rent increases of 1.5% expected this year and almost 4% per annum forecast between 2014 and 2016.