Although I am no clairvoyant, my 52-year peregrination through the residential property market traversing four recessions, has taught me that predicting the future is a hazardous and friendless pastime.
To quote the enduring expression, “Man makes plans and G-d laughs!” Nevertheless, I hope and pray 2027 will be blissfully uneventful, provided, of course, that the warning lights on the dashboard of economics do not morph into a fire alarm, calling out all three emergency services.
Let us consider the London sales market. The Iranian and Ukrainian wars remain geopolitical imponderables.
A settlement, or even a diplomatic ‘fudge’ of one or the other, could greatly ease inflationary pressures not just in the UK but across the Western world, lessening the upward pressure on interest and mortgage rates, certainly in this country.
For the moment, at least, we must assume that these conflicts will continue unabated.
The trouncing of the Republican’s by the resurgent Democrats in the recent mid-term elections is certainly profound and will undoubtedly attenuate President Trump’s domestic agenda although less so his foreign policy, where presidential control is usually operated less by legislature and more by Executive Orders.
I have a feeling in my waters that some sort of fudged compromise could be sought with the Ukrainian war as Trump’s ‘last hoorah,’ but any further speculation on this subject would be a dangerous and uncertain game.
Now that the Bank of England (BoE) has increased the bank rate to 4.4% there is probably only one more crank of the lever to go in 2027, when it is likely to peak at 4.25%. Clearly, they are worried about inflation which is currently trundling along at around 3.5% and may well peak at 3.75% before hopefully returning to the BoE’s ‘Holy Grail’ target of 2% in 2028. Mortgage rates, currently around 5.5–6%, are likely to remain in this range for the next twelve months. Cheap money, like affordable Champagne, may be something we long remember, rather than enjoy presently.
The £1 million–£3 million market
The predominantly domestic market remains reasonably orderly provided that sellers and their silver-tongued, sycophantic estate agents resist the temptation to price their homes as though Buckingham Palace were a comparable. Abstinence and self-control are the order of the day, which is a rare human trait once avarice plays its part. Ignore the true underlying value of one’s home and your property may become a museum piece collecting dust, visited on occasion by the odd Dickensian browser, sporting a monocle and fob watch.
Values in this bracket are probably down around 10% from their halcyon days of 2024. Sales can take three to six months, with viewing numbers dwindling from 40 to15 and, instead of five competing offers, you only get just the one, if providence is feeling generous. Property chains remain prevalent, but the real nuggets are the buyers who have already sold and are perhaps renting, who can proceed without the labyrinthine chains which ‘gum up the works’.
The £5 million–£10 million market
Here we encounter a more considered, sophisticated buyer who understands market dynamics, with the occasional international interloper adding a little cosmopolitan piquancy. An immaculate, ready-to-occupy home can still produce an occasional ‘rabbit out of the hat’, sometimes achieving a price reminiscent of the heady, post-Covid days a few years ago. In fact, we are short of properties like this, offering instant gratification, i.e. the incoming buyer brings just their clothes and food, rather than a battalion of builders, subcontractors and some industrial strength painkillers.
Tired properties or sites that need developing are another matter. Values may be discounted by as much as 20%, reflecting the time, cost and VAT-laden indignities of refurbishment or redevelopment. Even the most enthusiastic buyer can often lose heart when confronted with years of work and toil. This may be a version of the great disappearing money trick, where bags of cash evaporate into the ether with unbridled ease.
The imaginative purchaser may relish the prospect of creating a bespoke home, but, after all, this has its limits. If there is no price incentive, the ‘booty’ stays firmly in the bank. Whilst this sector remains orderly, finding the ‘right slipper for Cinderella’s foot’ may take six or twelve months or perhaps longer. Patience and fortitude become the necessary human resources. The potential buyers are invariably entrepreneurs, wealthy perhaps, but certainly not with access to sovereign wealth funds, and for whom every penny still counts.
Above £10 million
As the value range moves north, the market becomes rarified and increasingly dependent on an almost extinct species: the ‘wealthy international buyer’.
Unfortunately, Labour’s non-Dom reforms have proved to be a self-inflicted own goal of considerable proportions, costing this country a fortune, which it can ill afford to lose. According to Henley & Partners, 16,000 wealth creators have decamped to sunnier and more tax-friendly jurisdictions elsewhere in the world. Whilst the market is thin, it is still discernible, with numbers of serious buyers reportedly down by 60–70% from a few years ago.
The draconian Stamp Duty obstacles introduced by the former Chancellor Osborne in 2014 have become a major hurdle to negotiate, adding significantly to the cost of a purchase and locking up capital needlessly.
The remaining clientele are divided between those seeking a ready-made super-mansion and, in much smaller numbers, the hardy perennials prepared to undertake major rebuilding projects stretching over many years.
Whilst London, to the cognoscenti, remains the ‘Greatest City on Earth’, the financial arithmetic still needs to jive. Some wealthy families have departed, and we are sorry to see them go. Others have morphed into uber-tenants who choose to rent trophy homes rather than to buy them, using the savings from Stamp Duty Land Tax, which can reach an eyewatering 21% at its uppermost level, to pay towards the equivalent of rent for circa 4-5 years’. I’m not quite sure that the loss of this considerable tax revenue is what the Treasury had in mind for the tenants to use as a ‘foolproof tax-saving scheme’. But there it is.
The rental market
Below £1,000 per week, the rental market remains steady, with supply constrained as the Renters’ Rights reforms encourage some buy-to-let landlords to hang up their keys, having become asphyxiated by the adverse tax changes and draconian regulations littered within this industry. The predictable consequence is upward pressure on rents, leaving the vulnerable ever more moribund. Although this new legislation was intended to protect tenants, sadly as the ‘dead hand of government’ ply it’s trade, they paradoxically become the victims of Labour Party dogma, fuelled by the politics of envy, as they compete for fewer properties available.
At the other extreme, we are breaking new ground with uber-tenants willing to pay an eye-watering £40,000-plus per week for certain of Glentree’s trophy homes, which hitherto were on the market for sale, but without success. These extraordinary precedents reflect the substantial investments made by the company to cultivate relationships with wealthy clients across Eastern Europe, Scandinavia, Hong Kong and China and we are only too happy to welcome them to these shores.
Gardens and decent outside space, remain highly desirable amenities, and perhaps a legacy of the incarceration which represented the sterile Covid years of 2020–21.
Despite the more apocalyptic press commentary, there is no oversupply in any of these markets that would herald a price collapse. Generally, negotiations between buyers and sellers are polite and respectful and certainly do not usually amount to capitulation. The golden postcodes still command useful attention amongst discerning clients, but overpriced, mediocre homes collect dust and, over time, become rather uninteresting antiquities. Visions of the ‘Marie Celeste’ spring to mind.
My expectation is that values of residential properties across these price bands will not change dramatically during 2027 and if so, they could be up or down of 3%. The political outlook is largely baked in. A snap election is possible but unlikely, and although we have seen some corrections in the capital markets of late, triggered by over-rated tech stocks, one hopes that the ripple effect of this is not too devasting and widespread. The epicenter of these convulsions are principally in America and one hopes that even though 30% of the FTSE 100 revenues are derived from the USA, with a bit of luck, they are just corrections and not a precursor to a full blown recession over there, which if so, will surely have some deferred affect on the UK.
Invariably, we deal with the ‘have-to-buy’ rather than the ‘like-to-buy’ client, who is generally focused and keen to get on with life.
A durable settlement in Iran, for instance, could ease inflation and borrowing costs, although, as we all know, establishing one is no easy task given the issues at stake.
My advice to sellers and landlords is simple: price for the market that exists, not the one you last longingly remembered. Buyers and tenants sitting on the fence should remember that ‘waiting for a politician to admit a mistake’ is theoretically possible, but a poor foundation for an investment strategy.
Finally, one could hardly have expected the Chancellor’s latest ‘Much Ado About Nothing’ Budget to whisk us off, metaphorically speaking, on a fully paid-up, luxury holiday in the Caribbean, but perhaps something between this and a wet weekend in Morecambe, would have been nice.
As John Maynard Keynes observed: “The difficulty lies not in the new ideas, but in escaping from the old ones.”
Leave a Comment