Richard Campo, Founder of Rose Capital Partners, gives his assessment of London’s property market and explains why now might be a great time for savvy investors to buy.
If you’re someone who likes the idea of investing in property but have been holding off because of the volatility in the economy, now might be as good a time as any to think about taking the leap. Or perhaps you already have a property portfolio but would like to add to it? Without the benefit of a crystal ball, it’s hard to predict, but in my experience all the signs point to it being an excellent time to get into some real estate investing.
What’s happening with property prices?
Towards the end of 2022, there were very real worries that house prices were going to fall through the floor in 2023 and that mortgage interest rates were going continue soaring, to around a peak of 6.5%. Understandably, those who were considering a house purchase hit the pause button in order to take a breather and wait until the economy had stabilised.
The London market remains a very attractive long-term investment prospect for those with the money to buy. Indeed, interest has been particularly robust recently from those buyers overseas whose currencies are strong compared with sterling, such as the US and some of the Middle Eastern territories
House prices have indeed taken a knock, and the consensus among the property industry appears to be that there will be further falls to come this year. However, this is unlikely to be a long-term trend, particularly when we look at property in London and the South East. The London market remains a very attractive long-term investment prospect for those with the money to buy. Indeed, interest has been particularly robust recently from those buyers overseas whose currencies are strong compared with sterling, such as the US and some of the Middle Eastern territories. By taking full advantage of favourable exchange rates along with falling property prices in London, some properties in the City have been snapped up at a discount, whether that’s for rental purposes, investment or to live in.
But this will be short-lived. It’s always difficult to call the market but I believe that we are somewhere close to the perfect time to buy, and that’s because falling house prices in London will be a shallow dip rather than a deep dive, and it won’t be long before they start rising again.
With Prime Central London for example, Savills has suggested that while prices will drop by 2% in 2023, they will then go up for by 2% in 2024, 5% in 2025, 4% in 2026 and 4% in 2027. Sure, there’s some short-term pain, but that very quickly turns into a compound gain of 13.5%. Without the benefit of a crystal ball, we can’t say for sure, but I am pretty confident in potentially what might happen. I also can’t guarantee that this will be replicated across the UK, outside of London and the South East, but what is true is that the factors which have driven the incredible house price growth seen over the last decade or more – namely the underlying shortage of property – is not likely to be addressed in a material way any time soon.
With Prime Central London for example, Savills has suggested that while prices will drop by 2% in 2023, they will then go up for by 2% in 2024, 5% in 2025, 4% in 2026 and 4% in 2027. Sure, there’s some short-term pain, but that very quickly turns into a compound gain of 13.5%
What about mortgage rates?
Thankfully, mortgage rates have started to settle after the volatility which followed the mini-Budget in September 2022, and set the Bank of England scrambling for the panic button. Soaring gilt rates revealed the distaste of international markets and this, in turn, saw interest rates on UK mortgages rocket. Fast forward into 2023 and international confidence in the UK government and its fiscal position has stabilised and gilt rates have started to normalise slightly. This is good news for those wanting to secure a mortgage as lending rates have started to fall, making borrowing not as expensive as it was just three or four months ago.
Although we’re expecting to see further increases in the Bank of England Base Rate, possibly settling at around 4%, this shouldn’t have a big impact on lending rates, which is evident in the increased number and types of mortgage products that we’re starting to see in the market. In comparison to October 2022, fixed-rate mortgages were between 6 and 7%, but we’re now seeing 5-year fixed rates at much more attractive levels.
Variable mortgages continue to represent arguably even better value. They are often around 1% cheaper than their fixed counterparts, and with little expectation that the base rate will increase by that level this year, they could offer a smart way to keep your costs even lower
Variable mortgages continue to represent arguably even better value. They are often around 1% cheaper than their fixed counterparts, and with little expectation that the base rate will increase by that level this year, they could offer a smart way to keep your costs even lower. We have recommended variable mortgages to our clients more over the last few months than at any point in the last 10 years, precisely because of that value they offer should base rate move in line with expectations.
Top Tip
Property investment is perennially popular, and dips in prices represent a good chance for trading up your main residence too. As our guest writer explains, a look at long-term trends might suggest that now is the time to buy, particularly in London.
That decision made, your next port of call as a High Net Worth Individual should be a wealth manager. It is very often underappreciated how helpful they can be in property finance, particularly if the firm has a private bank standing behind it. Better rates, more flexibility and lending options you simply cannot access with mainstream institutions are available. Let us help in getting initial conversations going fast and free.
Lee Goggin
Co-Founder
Should I think about buying a property for rental?
There is a stark shortage of properties for rent currently, and this is projected to worsen as some smaller landlords continue to exit the market, for a variety of reasons including changes to taxation relief. This has meant that even those renting their homes face a slimmer range of options, with the inevitable result of rents being driven up. New figures from Hamptons show that the average rent on a newly let home in December was £1,216 per calendar month (PCM), up 7.7% from the year prior. That’s the strongest annual growth recorded by Hamptons for a December since it started tracking the data in 2013, and represents a growth of more than £1,000 a year for the typical tenant.
But while demand has grown, data from Rightmove shows that supply is lagging behind – between Q3 of 2021 and 2022, rental supply dropped by 5% across Great Britain. This imbalance is only likely to push rents higher, meaning that brave investors can not only take advantage of capital growth but an enviable rental income to boot.
Who should I see about finance?
Not only are we seeing more mortgage products on the market, and competitive ones at that, we’re seeing more lenders venturing back into the market. This is significant for two reasons:
1) it shows that lenders have confidence in the property market and house sales again;
2) they believe that the economy has stabilised and, unless something drastic happens, the economy is on a sure footing again so they are happy to lend money.
This is great news for borrowers as lenders are keen to have you has a client. As a wealthy individual, some banks (particularly private banks) will be happy to come up with exactly the right lending solution for you and could also advise you on tax and wealth planning and estate management.
This is great news for borrowers as lenders are keen to have you has a client. As a wealthy individual, some banks (particularly private banks) will be happy to come up with exactly the right lending solution for you and could also advise you on tax and wealth planning and estate management
Conclusion
In a nutshell, if you’re looking to take the leap into property investment, now is potentially the time to do it because you will be benefiting from:
- Lower property prices - which are yet to start rising again
- Stable interest rates on competitive mortgage products
- Lender enthusiasm to lend – they will be happy to negotiate a deal to secure your business
- (For buy-to-let investors) Potentially healthy rental yields plus the capital appreciation of the bricks and mortar, particularly in London and the South East.
With any decision that involves a large mortgage, I would advise that you seek the services of an independent mortgage broker who has unrestricted access to thousands of products from hundreds of lenders, including private banks, specialist lenders and building societies.
Important information
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.
