Friday 16 June 2017 2:50pm
Ed Phillips is the managing director of lettings at Foxtons
As a buyer, you can always rent until you feel more confident to commit to, arguably, one of the most significant purchases you’ll ever make.
Uncertainty has become the new norm in the London property market – and there’s no sign this will change in the near future. While a general election could normally be expected to bring stability, this year’s vote has seemingly done the opposite.
On top of a hung Parliament, the delicate process of Brexit negotiations is likely to take time, and this will continue to have an impact on sales volumes. However, uncertainty need not be a harbinger of doom for all parts of the market. In fact, my outlook for the London lettings sector remains largely positive.
The lettings market’s flexibility makes it more resistant to uncertainty than its sales counterpart, which is vulnerable to external shocks. In fact, the lettings market becomes part of the solution when uncertainty hits the sales market. As a seller, you can always let your property until the market stabilises, either furnished or unfurnished and for the long or short term.
As a buyer, you can always rent until you feel more confident to commit to, arguably, one of the most significant purchases you’ll ever make. Buying a property usually requires compromise, typically on the size or on the location, so many choose to rent for longer and enjoy their home without having to compromise.
Another strength of the lettings market is its adaptability to changes in stock levels, prices and tenant demographics. The perfect example of this was at the time of the financial crisis in 2008. Sales stock levels decreased significantly as sellers put their properties up for rent instead of selling, which in turn put downward pressure on rental prices.
Attracted by lower prices, tenants were keen to let for a longer period of up to three years, which provided landlords with long-term stability and benefited both parties in an uncertain market. These lengthy contracts decreased stock levels and, with an increase in demand driven by lower prices, the lettings market stabilised much sooner than its sales equivalent.
A similar pattern is already noticeable in today’s market. Uncertainty prompted by the largely unexpected outcome of the EU referendum has resulted in decreased sales volumes. Meanwhile, lettings market stock levels are on the rise and we are seeing an increasing number of landlords and tenants transact at lower prices.
Looking further ahead, analysis of our tenant demographic over the period from Q4 2016 to Q1 2017 shows that 33 per cent of tenants in London come from Western Europe. While the prospect of a hard Brexit affecting a third of tenants in London might initially appear galling, what needs to be taken into account is the lettings market’s ability to rebalance itself.
London will remain an attractive proposition to both UK and international tenants with any potential price correction only increasing its appeal. This high level of demand will aid the market’s recovery in the relatively near future. Whether the same can be said for the sales market remains to be seen.
