The prime residential property market across London continues to struggle. Changes to Stamp Duty have had a negative impact on sales of high-value homes, with buyers seeking price cuts to offset the increased tax. Properties over £1.4m attract nearly 20% more in stamp duty under the current system; for properties above £2m the tax bill is around 54% higher than it was in 2014.
Buyers are very keen to drive a hard bargain, while sellers are reluctant to accept cut-price deals, a situation not helped by some agents overvaluing properties in order to win instructions – a tactic which often delays a sale and usually results in a price reduction.
Investors meanwhile are suffering from low yields and flat or falling capital values. They also face the prospect of increased costs arising from new legal requirements introduced since summer, plus a reduction in mortgage interest relief over a four-year period beginning in April 2017 for higher-rate tax payers.
The effect of these changes on the Mayfair market is demonstrated by the fact that sales in the first seven months of 2015 were around 20% lower than in the corresponding period in 2014, according to Land Registry data, while the average recorded sale price was £2.82m compared to £4.17m in 2014.
With the 3% stamp duty surcharge on second home and buy-to-let purchases from April 2016, we expect to see more homes coming to market, which may push prices in Mayfair down. The shrewd investor should look to acquire keenly priced properties ahead of the introduction of the 3% stamp duty surcharge from 1st April. With this we should see a slight increase in activity in the £1-2 million market.
Could there be a flurry of activity? It's too soon to say, but now is the crucial time to appoint a strong agent who has a clear plan how to get you the best price in turbulent times.
Sellers who are not attracting offers on their properties should ask why. This should involve a critical analysis of the property itself, including its presentation and price, and feedback from prospective buyers as to why they did not make an offer. If price is the issue, then a reduction should be considered; better still price realistically from the outset, as canny buyers spot price reductions and hold out for further discounts.
The marketing of the property should also be questioned, including the type and length of the agreement with your estate agent.
Investors will also need to consider ways of improving their returns as both house prices and rents are fairly static at present. Should underperforming properties be sold and the proceeds reinvested?
If the property is retained, then a review of operating costs should be conducted, including a rent review. If selling looks to be the best option, there's no need to wait until spring, as buyers are still around, even in winter and early spring.
" Landlords need to factor in the impact of the new legislation and tax changes" Erik Holmgren, Director
The first three months of the year traditionally see an increase in market activity from the quieter period in the lead-up to Christmas. The availability of homes to rent across all price ranges generally improves across the first few weeks of the year, making price and presentation key factors in successfully securing a new tenancy.
If landlords do decide to sell underperforming assets, then new developments should offer good opportunities to reinvest within Mayfair – there are currently 335 private homes in 27 schemes either under construction or with planning consent, and a further 12 schemes awaiting approval.
Neighbouring St James and Marylebone may also be worth considering, as they offer good rental growth and stronger tenant demand at comparatively lower purchase prices.
Short-term rental growth in Mayfair is likely to be slow. There is a good supply of properties at all but the lower end of the price range, and rental uplift will be difficult to achieve without carrying out major improvements to a property and associated services. Looking further ahead, landlords need to factor in the impact of the new legislation and tax changes on their operating costs, some of which could be recouped via a rent increase. The stamp duty hike for landlords from April is a bump in the road for smaller portfolio investors.