When Harriet Hill began looking for a London home six...
London Homebuyers Gain Clout as Regulator Stymies Sellers. When Harriet Hill began looking for a London home six months ago, open houses drew two dozen or more hopeful buyers. Fierce bidding wars were common. That’s all changed. “If you saw a place that you liked you had to go for it -- there wasn’t
When Harriet Hill began looking for a London home six...
London Homebuyers Gain Clout as Regulator Stymies Sellers.
When Harriet Hill began looking for a London home six months ago, open houses drew two dozen or more hopeful buyers. Fierce bidding wars were common. That’s all changed.
“If you saw a place that you liked you had to go for it -- there wasn’t even time to go back for a second viewing,” said Hill, a 29-year-old charity worker. “There’s been a sudden swing of power towards the buyer. I can take my time.”
London home sellers, who have dominated the market for five years amid a dearth of inventory and robust demand, are losing clout to buyers. Mortgage restrictions and a rise in the number of homes for sale have cooled the market. Buyers also are concerned about a jump in interest rates after Bank of England Governor Mark Carney warned that a property bubble is the biggest risk to the U.K. economy.
London house prices rose at the slowest pace in more than three years last month, the Royal Institution of Chartered Surveyors said yesterday. The average time a London home stayed on the market almost doubled to about 34 days in the six months through August, Hometrack Ltd. said last month. And a smaller proportion of sellers were able to get the price they asked for, the London-based research group said.
“Sentiment has shifted,” Hometrack director Richard Donnell said. “We’ve moved from excess optimism and been hit by a combination of the mortgage market review, talk of interest rate rises, warnings from notable folk about overheating alongside the slower summer months.”
The swing began in April, when the Financial Conduct Authority introduced homebuyer affordability checks as part of its market review to prevent the sort of borrowing excesses that fueled the financial crisis. Warnings from the International Monetary Fund in June that the U.K. must act to contain price rises and prospects of higher borrowing costs also made buyers more cautious.
“People have said, you know what, I’m just not paying that,” said Richard Sexton, a director at property appraiser e.surv in Kettering. “The market is topping out and buyers are being more prudent. They can do that because they’ve got more choice.”
The proportion of sales where sellers got their asking price declined to 96.4 percent in the six months through August, from 98.8 percent in February, nearing the 94 percent mark that indicates falling prices, according to Hometrack. The number of new buyers in London registering with estate agents fell by 3.9 percent.
BOE measures to restrain London prices, which have climbed more than 50 percent in five years, include limits on mortgages worth more than 4.5 times a borrower’s annual income. The central bank also is requiring lenders to reject mortgages for buyers who fail a stress test that assumes an immediate 3 percentage-point increase in the benchmark interest rate.
Carney also has signaled the BOE probably will increase borrowing costs next spring from the current record low of 0.5 percent.
Lloyds Banking Group Plc (LLOY), the U.K.’s biggest mortgage lender, and Royal Bank of Scotland Group Plc plan to limit customers to a maximum of four times income on mortgages of 500,000 pounds ($811,000) or more to counter home-price inflation.
Asking prices fell by about 6 percent in August, the largest of three consecutive drops, as buyers became concerned that interest rates might rise and banks curbed lending, property website Rightmove Plc said on Aug. 18.
There was a 10 percent increase in homes put up for sale and a similar decline in buyers during August compared with a year earlier, according to Johnny Morris, head of research at broker Hamptons International. That could help close the gap between London house prices and the rest of the U.K., which has widened to the most in at least two decades, Acadata and LSL Property Services said today.
The changing market also has hurt brokers. Foxtons Group Plc (FOXT), the broker that sold shares to the public in March, has lost almost 30 percent of its market value. On Aug. 27, the shares had their biggest decline after Chief Executive Officer Nic Budden said London’s residential market may slow in the second half. The shares closed at about 232 pence yesterday.
BC Partners, a private-equity firm, on Sept. 5 appointed advisers to sell a 7.3 percent stake in the company.
Even so, London is unlikely to see substantial declines in prices while the housing shortage is so acute, e.surv’s Sexton said. The city’s population is expected to grow by about a million people to 9.2 million from 2011 through 2021, according to a draft local government plan for the city.
Mayor Boris Johnson’s goal is to get 42,000 homes a year built during the next decade. The pipeline of homes is 28,500 a year for the next five years, according to broker Savills Plc. (SVS)
“It’s not a crash,” said Sexton. “Properties have reached their natural high. It’s returning to a more normal, more considered market.”
The housing boom began five years ago in central London’s luxury market, where foreign investors attracted by a weak pound and relative safety pushed prices to record highs, according to London-based broker Knight Frank LLP. Growth was moderate in the rest of the British capital until early 2013, when the government announced mortgage-guarantee and equity-loan programs known as Help to Buy.
“All the negative sentiment disappeared,” Donnell said. “We saw a big surge in pent up demand from domestic buyers concentrating in London and extending down the commuter routes.”
With the BOE’s benchmark interest rate stayed at its historic low since March 2009, the city’s housing prices toppled records. Values in London are more than a third above the previous peak in 2008 and double the national average. They jumped 19 percent in the year through June, twice as fast as the U.K. as a whole, Office for National Statistics data show.
The average London home at the end of the second quarter cost 500,000 pounds, or almost nine times a typical first-time buyer’s salary, according to lender Nationwide Building Society. Acadata and LSL Property Services said the average price in London is now 473,893 pounds, which compares with 185,496 pounds in the rest of the country. That’s the biggest gap since Acadata’s records began in 1995.
During the buying frenzy, even brokers didn’t like the large group viewings, Hill, the homebuyer, said.
“You’d have people pointing out cracks in the wall before loudly claiming they wouldn’t want to live there” to throw competing buyers off, Hill said. “Then on their way out they’d quietly make an offer. It was really mental.”
U.K. homebuilders have declined with the cooling market. The Bloomberg U.K. Home Builders Index of 10 stocks has dropped about 4.7 percent in the past six months.
Still, a return to a “normal seasonal market” is a positive thing, said Barratt Developments Plc Chief Executive Officer Mark Clare.
“What we really need is house prices that move with wage inflation, which is where the Bank of England predicts they will go,” Clare said in an interview.
Hill, who is looking for a two-bedroom home in the south London district of Streatham, said there’s a surplus of homes available and offers well below the asking price are becoming commonplace.
“If things had continued the way they were it would have been truly unpleasant,” she said. “Now there’s breathing space, room to make an offer.”
From Bloomberg.com Bloomberg Internet Publication