Is London's property market about to grind to a halt?

A slump in the pound could slow down the market.

London estate agents do not lose a minute pumping out press releases in reaction to new laws or regulations that appear in some way to threaten their business.

The format for these releases is always the same: when the new law is proposed, the agents cry in agony that it cannot possibly be allowed to happen because it will destroy the property market. Then when it does happen, they put out another set of press releases claiming it really won’t make much difference after all and that the party can go on.
So it was with the EU’s campaign to slash bank bonuses. When first mooted, this was portrayed as a measure that would destroy the London market. According to figures from Savills, 52 per cent of the money that goes into the prime central London property market and 62 per cent of the money that goes into the south-west London market for houses worth £2 million and above originates in the bonus packet of somebody who works in the financial sector.

That is an awful lot of money. Take it away and you would have an awful lot of unsold properties. But now that the bonus cap has made it into EU law — the European Commission to include in its Capital Requirements Directive a clause limiting bank employees to a bonus of no more than 100 per cent of their annual salary, or 200 per cent if they receive special permission from their shareholders — the well-groomed Ruperts and Samanthas who make their living selling top-end properties don’t seem too bothered.

They have a point. As with so much the EU does, there is a gaping hole in the proposal to limit the size of bank bonuses: it doesn’t say anything about limiting salaries. Rich people are in the habit of employing brainy accountants to pick at loopholes, but in this case there doesn’t seem to be much need to spend a great deal on accountants’ fees. Why not just take your bonus in twelve monthly instalments and call it a salary rise instead? Logically, banks will move to a model of remuneration based around annually renegotiated salaries.

What is potentially more damaging is the banks’ own decision to cut their remuneration pools. Bonuses have already fallen sharply — by 9 per cent last year. As they did, so buyers in the prime central London market became increasingly reliant on borrowed money.

According to Cluttons, 74 per cent of buyers bought with a mortgage in 2012, up from 49 per cent in 2011. Perversely, the EU’s rules might actually make it easier for some bankers to buy high-end properties. If it leads to an increase in salaries to compensate for a decrease in bonuses, it might make it easier for bankers to persuade lenders to give them large mortgages, the assumption being, rightly or wrongly, that while a bonus is a one-off, a higher salary will go on year after year.

If I made my money selling London property, the other thing which would worry me is the slide in sterling. Over the past decade, the prime London market has become ever more reliant on foreign money. One estate agent in Mayfair claims not to have sold a single property to a Briton since 2005.

Developers of London apartment blocks no longer bother hawking their wares to British buyers, instead folding up the plans and taking them to roadshows in Singapore and Hong Kong. Buyers from those two countries accounted for 23 per cent and 16 per cent respectively of all new building sales in central London, according to Knight Frank.

Thanks to their interest, property prices in London rose by an average of more than 7 per cent last year. If that seems a good return — certainly compared with property outside London — it has to be remembered that the dynamics of the British property market are quite different from the perspective of an overseas buyer. If you are out in Singapore, that 7 per cent profit has been almost completely wiped out by the slide in the value of the pound, which a year ago was trading at over two Singapore dollars but is now down to 1.87.

If you are expecting the pound to slide, it makes no sense to invest in London property. When it slumped in 2008, London property prices sank sharply with it. Now that expectations are forming once more that the pound will sink some way into the future, overseas investors have a double incentive to bail out of the market. If fellow overseas investors lose interest in London’s new-build market, it is hard to see how frothy prices can be sustained. Falling prices, compounded with a currency loss, could make a very nasty dent in their investment.

To which, inevitably, the estate agents have an answer: the London property market, they say, holds more attractions than simply financial gain. London is a pleasant and safe environment in which to live and own property. The world’s wealthy feel at home in London. Of all property hotspots, it is the one where you can feel most secure that your apartment will not suffer collateral damage from tanks rolling down the streets.
Perhaps, but I can’t help thinking that the promise of capital gains comes into the calculations, too. If you were especially keen to live somewhere but were convinced that the value of the property there was going to fall, you might just be minded to rent instead.

The boom in top-end London property over the past four years has been stoked partially by quantitative easing — printing money, to you and me. That has kept asset values pumped up. But you can’t keep inflating a market without consequences, and the debasement of the currency is ultimately undermining the value of investments made by overseas investors. Property might still be preferable to cash in many ways, but if you want an inflation-proof asset it is better still to have one you can at least stuff into a bag and take out of a country with a soft currency.

Photograph: Getty Images

Ross Clark is the author of How to Solve It, which is published by Harriman House (harriman-house.com)

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Voters are turning against Brexit but the Lib Dems aren't benefiting

Labour's pro-Brexit stance is not preventing it from winning the support of Remainers. Will that change?

More than a year after the UK voted for Brexit, there has been little sign of buyer's remorse. The public, including around a third of Remainers, are largely of the view that the government should "get on with it".

But as real wages are squeezed (owing to the Brexit-linked inflationary spike) there are tentative signs that the mood is changing. In the event of a second referendum, an Opinium/Observer poll found, 47 per cent would vote Remain, compared to 44 per cent for Leave. Support for a repeat vote is also increasing. Forty one per cent of the public now favour a second referendum (with 48 per cent opposed), compared to 33 per cent last December. 

The Liberal Democrats have made halting Brexit their raison d'être. But as public opinion turns, there is no sign they are benefiting. Since the election, Vince Cable's party has yet to exceed single figures in the polls, scoring a lowly 6 per cent in the Opinium survey (down from 7.4 per cent at the election). 

What accounts for this disparity? After their near-extinction in 2015, the Lib Dems remain either toxic or irrelevant to many voters. Labour, by contrast, despite its pro-Brexit stance, has hoovered up Remainers (55 per cent back Jeremy Corbyn's party). 

In some cases, this reflects voters' other priorities. Remainers are prepared to support Labour on account of the party's stances on austerity, housing and education. Corbyn, meanwhile, is a eurosceptic whose internationalism and pro-migration reputation endear him to EU supporters. Other Remainers rewarded Labour MPs who voted against Article 50, rebelling against the leadership's stance. 

But the trend also partly reflects ignorance. By saying little on the subject of Brexit, Corbyn and Labour allowed Remainers to assume the best. Though there is little evidence that voters will abandon Corbyn over his EU stance, the potential exists.

For this reason, the proposal of a new party will continue to recur. By challenging Labour over Brexit, without the toxicity of Lib Dems, it would sharpen the choice before voters. Though it would not win an election, a new party could force Corbyn to soften his stance on Brexit or to offer a second referendum (mirroring Ukip's effect on the Conservatives).

The greatest problem for the project is that it lacks support where it counts: among MPs. For reasons of tribalism and strategy, there is no emergent "Gang of Four" ready to helm a new party. In the absence of a new convulsion, the UK may turn against Brexit without the anti-Brexiteers benefiting. 

George Eaton is political editor of the New Statesman.