LonRes has just released its Residential Review winter 2019 report, which unsurprisingly found that estate agents in the capital expect Brexit to remain the biggest drag on demand for homes to buy and tor rent in 2019.
Sales market overview
In the latest LonRes survey, 68% of respondents expected Brexit uncertainty to have the biggest impact this year, up from 58% last quarter.
Current apprehension over the economy, and the impact on house prices, remain a sufficient concern for vendors and buyers alike to withdraw from the market and wait. The number of sellers withdrawing their homes from the market has increased, says LonRes, adding that in 2018 more homes were removed from the sales market in the capital due to a withdrawal than due to a sale.
Fewer vendors are bringing their homes to market, with new instructions down 20% in Q4 2018 compared with the same period a year earlier. However, there was some positive news regarding market activity in the second half of 2018. The report stated: “We saw a 6% increase in homes going under offer, following a fall in the first half of the year. The number of homes sold in the last three months of 2018 did exceed the first three, when transactions dropped 21% on 2017 levels.
“However, transactions in the fourth quarter remained 13% down on Q4 2017. This is lower than we had hoped. But agents are reporting an increase in the time between under offer and exchange, which could mean some of those deals struck in the latter part of 2018, could well, cold feet permitting, still translate into completed sales in Q1 2019.”
Achieved prices across the three prime areas of London fell 5.7% in Q4 2018 compared with the same three months a year ago. LonRes added: “Find a vendor keen to sell, and buyers could be paying significantly less than at the peak of the market four years ago. Buyers of homes in prime central London paid 14% less in Q4 2018 compared with the 2014 peak. Even for those with something to sell, the cost to trade up has fallen. For overseas buyers there are opportunities too. Those buying in US$ are paying on average 36% less in Q4 2018 than at the peak of the market in 2014.
“Looking ahead our agents remain split on the outlook for 2019, 45% expect prices to be lower by the year end, but most agree that it looks likely to be a challenging year. (But) homeowners in prime London are not in the same position as in previous downturns. Few are burdened with high loan-to-value mortgages, interest rates remain at a near all-time low and many owners have built significant equity buffers in their prime London homes.”
Lettings market overview
Achieved rents in London rose in the fourth quarter, up 1.9%. Only prime central London reported a modest fall in achieved rents, down 1% compared with Q4 2017.
According to the most recent LonRes survey, 58% of agents saw an increase in tenants who had previously been looking to buy, while just 8% reported a fall. However, despite poaching prospective buyers across into the rental market, new lets agreed also continued to fall, down 17% in Q4 compared to Q4 2017. The falls were more pronounced in the second half of 2018, with an 11% reduction in new lets compared to a 2% fall in the first six months.
Fewer tenants moving, coupled with a lack of fresh buy-to-let stock reaching the market is contributing to the lower levels of new instructions experienced in 2018. Over the course of the year 13% fewer properties reached the market to let.
However, this meant that landlords listing properties to rent in London were finding tenants sooner and in Q4 2018, 30% of properties let in prime areas of London had a new tenant within a month of being listed to let. This is up from 23% in Q1 2018 and the highest for four years. The LonRes survey also showed that 80% of agents reported an undersupply of studios and one-bedroom flats to rent in their area.
Despite this shortage of rental units, in Q4 2018 tenants still managed to negotiate an average of 4.9% off initial asking rents, down from 6.4% a year earlier. Over the same period the number of properties requiring a reduction in asking price fell from 41% in Q4 2017 to 31% this quarter.
Marcus Dixon, head of research at LonRes, said: “There is conflicting news on the state of the prime housing market. While the World’s wealthy appear to be seeing value and opportunity in prime London, many are still postponing their decision to buy.
“What will 2019 hold? That’s an even tougher call. On sales prices our subscribers are split, 45% expecting prices to fall in 2019. The outlook for rents is more positive, with only a third expecting rents to have fallen by the year end and just 24% expecting fewer new lets in 2019 compared with 2018.”
