Marios Theophanous

Opportunities in the London property market

The Bank of England's Monetary Policy Committee (MPC) sets policy to meet the inflation target in order to help sustain growth and employment.

At its most recent meeting in May, it voted to maintain the bank rate at 0.5%, but indicated small base rate increases at a gradual pace and to a limited extent could be on the way in the medium term as the economy grows above its potential.

Although the Office of National Statistics (ONS) revealed in March that inflation had fallen to 2.5%, this was still above the Bank’s target of 2%, mainly due to the fall in the value of the pound after the Brexit vote. But the Bank expects this to gradually fall back towards the target level.

The prospects for the economy are also good as GDP showed a rise in Q4 2017.

London property overview

In recent years the London property market has had a lot to contend with. Increasing stamp duty for high-end properties, buy-to-let legislation and tax changes and, of course, much debate over the longer-term impact of Brexit. However, despite this, demand remains strong in the residential and commercial property sectors for the capital, and it’s now a good buyers’ market.

Potential Brexit impacts

Although there is still some uncertainty over the Brexit negotiations and how the final deal will impact the property markets, there are real reasons to be optimistic about the long-term strength of London as a property capital. Opportunities for investors will remain in terms of rental acquisitions, renovation projects and new builds.

There will be continuing demand for HMOs, student accommodation as well as retail and commercial property in London. Indeed, inward investment from overseas is still strong as cash-rich companies and developers seek to purchase major office buildings to strengthen their portfolios, for example, with the purchase of iconic buildings such as the Walkie-Talkie and Cheesegrater by foreign investors.

London itself will continue to be resilient as it will always have an underlying demand for residential and commercial rental property. It is likely that the ‘softer’ the Brexit, the better this will be for the London market as a transition period will smooth out the process and minimise sudden shock in values and returns, and with UK interest rates remaining relatively low, London property is still seen as an attractive prime market location.

Bridging finance optimism

For residential and small- to medium-sized commercial properties, bridging finance remains a popular funding vehicle to facilitate the quick purchase of buy-to-let investments, property in need of renovation with an eye on the rental market and development land for construction.

The Association of Short Term Lenders’ (ASTL) recent sentiment survey reported that confidence was high with their lender members, who expected continued volume growth in the bridging sector. In 2017, over £3.5bn was lent by their members, demonstrating a solid demand for bridging funding. A major expectation is that more money will be lent to SME housebuilders and property developers to further ease the housing crisis.

This year has started well with bridging lending reaching more than £1bn in the first quarter of 2018, up 1.5% on Q4 2017.

The popularity of this form of finance is based not only on the speed at which it can be delivered, but the relative low rates, and the breathing space it provides for longer-term finance to be put in place once a property is acquired and renovated for either rent or sale. Loans are typically three to 18 months and then paid off in full, so it’s important to have the exit strategy agreed in advance. 

The London hub

With London property prices now stabilising, this makes it a good buying market when balanced with a continuing high demand for well-located rental space, both for the commercial and residential sectors.

With the UK economy performing well and even with the possibility that interest rates may creep up in the coming months, the market remains strong and a good market for buyers.

The current data suggests that London is still a premium property location with a rental population that still needs to be provided with quality, well-managed housing and office space.

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