England (Commonwealth Union)_ According to the latest data, the market for London’s most expensive properties has been thrown into chaos and is unlikely to recover until next year after last month’s mini-Budget spurred predictions of a dramatic decrease in property prices.
According to LonRes, which monitors London’s high-end property market, the number of property deals falling through in the capital’s most expensive postcodes, including parts of Mayfair and South Kensington, has increased in the five weeks following former chancellor Kwasi Kwarteng’s statement on September 23. Since the mini-Budget, 262 prime house sales have failed, an 82% increase over the 144 that failed in the same period previous year.
According to LonRes data, the number of properties being cut in price to expedite a deal has climbed by 60%, and the number of homes being taken off the market is beginning to rise. Anthony Payne, managing director of LonRes, said: “There is a stop in the market that is directly related to the “mini”-Budget, and which I anticipate will lead to price reductions.”
Kwarteng’s pledge of £45 billion in tax cuts without any explanation of how they would be paid for immediately shocked the housing market. As markets priced in bigger and faster interest rate increases, borrowing costs increased, and gilt yields increased significantly. This had a chilling effect on the mainstream housing market, with lenders hiking mortgage rates and withdrawing first-time buyer packages, and prospective purchasers lowering their bids because they believe house values will fall further.
Because many buyers are cash-rich and less reliant on borrowing, the higher echelons of London’s housing market are comparatively immune to these difficulties. Overseas buyers account for a sizable share, so the weakening of the pound is usually beneficial.
However, LonRes data reveals that this time, prospects of a dramatic price decline are weighing on sentiment. “What has vanished is the urge to [own a property] overnight,” Payne stated. “Whether you are paying £500,000 or £15 million, you will wait if you believe the market will decline by 10% to 15%. How could you not?”
Earlier this week, Lloyds Bank predicted that UK home values would decline 8% in the upcoming year. Other analysts have been even more pessimistic. Payne estimates that the trade slowdown will endure for at least six months before prices have sufficiently dropped to draw purchasers back.
Jo Eccles, founder of high-end property buying and management firm Eccord, agreed that the mood among typical cash-rich buyers had quickly soured. With the likelihood of a crash increasing, “many feel embarrassed to tell to friends at a dinner party, ‘I’m pushing forward with the purchase’… Sentiment is just so fragile,” she explained.
She also mentioned that increasing mortgage rates were having a negative impact. “Many folks are sitting on the sidelines or having to recalculate their numbers and discovering they have a lot less to spend than they did earlier,” she said.
