American philosopher William James may not have been referring to the prime London property market when he made this statement over one hundred years ago but it is certainly applicable.
Bad news tends to stick and we have seen plenty of that regarding the London property market in recent times, during the last twelve months in particular.
In the midst of the negative headlines and gloomy forecasts, the Prime Central London (PCL) property market has been quietly getting on with things.
There is a misconception that the higher end of the property market suffers the most when there is uncertainty in the air, but the data paints a very different picture. In fact, the higher up the property scale one goes, the more resilient the market appears to be.
Resilient at the top
Properties valued up to £1m have seen a fall of 6.3% over the
past year, according to Knight Frank. Yet the higher up the scale you go, the lower the drop is. Those with a value between £1m to £2m saw an annual fall of 5%. The trend continues with a 4.9% drop for properties between £2m-£5m, a 3.8% drop for those between £5m-£10m and those over £10m only a 2.6% fall.
Whilst unwelcome, such house price falls are still fairly modest compared to historical dips and the rate of house price deprecation has slowed considerably in recent months.
PCL properties up to £1m saw a fall of just 0.2% in April, according to Knight Frank, with properties over £10m falling by just 0.1%.
Tom Bill, head of London residential research at Knight Frank describes the current downturn as “comparatively shallow” compared to previous slowdowns.
In its April Residential Research Prime London Sales Index, he analyses PCL house prices from a ‘peak to trough’ perspective and points out that an average decline of 12.9% in PCL is lower than the 22.3% fall seen during the global financial crisis or the 20.7% decline during the UK recession of the late 1980s and early 1990s.
He attributes the resilience of the PCL property market to HNW buyers and sellers being more “discretionary” in nature.
“The greater impact of a weaker sterling in higher price brackets has also underpinned demand,” he says.
London is still the city of choice for many of our High Net Worth (HNW) clients. The lifestyle, business and education opportunities it offers are amongst some of the best in the world.
Not to mention the buoyant private banking sector in the UK which is able to assist HNW clients in buying their London properties, whether it be for residential or buy-to-let purposes
Some of the current low mortgage rates on offer alongside the flexibility and myriad lending solutions private banks offer all currently add to the allure of the capital.
Of course, house prices are just one side of the property story. It might be argued that demand is a truer reflection of how one particular property segment is performing and is also inevitably linked with house prices.
So, whilst a fall in property prices might be bad news for sellers it can be good news for buyers and this is something the data conveys.
If we look at the figures for transaction levels; far from being gloomy they paint a promising picture of the PCL property market.
In its April Index, Knight Frank’s figures show the number of offers made in PCL in the first three months of this year was the highest in more than ten years, while the number of new buyers was the highest figure for Q1 since 2014.
This resulted in exchanges rising by 6% between January and April compared to 2018.
“Price adjustments at the top-end of the market are having a discernible effect on trading activity,” comments Bill.
“Combined with the discount available for non-sterling denominated buyers, the result is that the number of deals in London above £20m last year was the highest in four years,” he adds.
Overall, London property exchanges from all price brackets saw a 9% annual decline, according to Knight Frank. Yet the number of exchanges above £2m rose by 1% in the year to April compared to the previous 12-month period.
The bespoke approach offered by private banks can assist HNW clients when it comes to buying their London property and this may be another reason why this cluster of the market continues to prosper.
Even HNW clients with the most complex of incomes, consisting of bonuses, earnings in a foreign income, stocks, shares, property or other investments can benefit from the tailored approach private banks offer.
Often by taking more of the HNWI’s wealth into account it can lead to the client being offered more flexible innovative terms – even for those wanting to borrow at a high LTV or on an interest-only basis.
The data suggests that instead of waning, many potential buyers are merely waiting in the wings and for those that are ready to listen, the PCL property market is still calling.
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Head of Business Development Intermediary Mortgages