The London property market has proven both structurally adaptable and eminently resilient in the face of significant headwinds, including the Covid-19 pandemic and an economic recession. Key to this adaptability has been the rapid adoption and deployment of hugely effective governmental policy instruments, which have bolstered demand and supported growth. The Stamp Duty Land Tax (SDLT) holiday, Help-to-Buy, and furlough schemes are pivotal initiatives, which continue to support both buyers and tenants, as well as providing assurance to long-term investors. Suppliers have been able to expand development efforts, which are crucial in addressing the undersupply of housing.
Liquidity has similarly been a key feature of the resilience that London real estate is exhibiting. At the macro level, credit markets remain at historically low-interest rate levels. Banks are maintaining high capital adequacy ratios and offering competitive products to both buyers and investors. Mortgage approvals reached record high levels since the global financial crisis as the level of potential equity release in London reached £114bn (£148,909 per household). This has propelled buy-to-let markets as savvy landlords reinvest this realised capital appreciation into high specification housing which delivers on the evolving needs of consumers. Further, a fall in sterling, low mortgage rates and London’s strong property market have precipitated significant overseas investor demand.
Safe haven credentials, world-class infrastructure, and clout as a global financial capital will all continue to contribute to London’s allure as an investment hub. Investors have been buoyed by high demand, a shortfall in supply, strong yields and attractive prices. London remains at the forefront, with developers seeking to contribute long-term assets, which appeal to structural (demographics and urbanisation) rather than cyclical factors. Build-To-Rent housing is an excellent case in point, designed from the outset to cater to prevalent trends such as remote working, necessitating home office space, or increased family care, requiring green and outdoor space.
Forecasts such as that of Savills, who expect rental values to grow in Prime London by 1 per cent in 2021 and 4.5 per cent in 2022, attest to the impact of key infrastructure investments such as Crossrail in delivering this growth. Knight Frank anticipates cumulative house price growth of 17 per cent from 2020 to 2024 in Prime Central London, set against a backdrop of 14 per cent growth across the UK, a testament to London real estate’s robust momentum.
We’re likely to see rental values rise over the next two years, depending how quickly we return to some version of normality. Across prime London, we expect that rental values will grow by 1 per cent in 2021 and 4.5 per cent in 2022: Savills.