Back to the Future

There is enough date for us to create a model that enables a bit of foresight when looking at the market, which is hugely valuable whether you’re buying, selling or renting. So after a tumultuous 2013, it’s time to take our learning’s and apply them to the market in 2014.

Fulham’s headline news from 2013 was an unprecedented rise in house prices. While this can be a mixed blessing depending on your position in the housing market, overall, and in the long term, it is a good thing for SW6, so read on. London’s prime property – the top end of the housing market by price – in South West London increased by a whopping 11.8% in the year between Sep 2012 and 13. A report from Savills calculates that £1m invested in a Fulham property would have gained £2,500 per week over the past year, against central London’s £845-a-week. The city centre still claims the strongest recovery following the recession, with prices up 27.8%, SW6 is slipstreaming behind with 27.5%.

So business is good in the upper end of the market. Buyers from Chelsea and Kensington have spent the last year coveting the size, quality, location and value of properties at the far end of the King’s Road. Perceptions have changed radically amongst great swathes of West London’s residents. Fulham’s no longer the naff neighbour; it’s exciting, intriguing and, if you’re looking to upgrade to a larger, family friendly home, extremely tempting. Then there’s the influx of foreign buyers. According to the Financial Times, in 2010, 79% of sales in Fulham were to domestic buyers, but in the first quarter of 2012, this fell to 52% as buyers from Western Europe and The Middle East bought property in SW6.

These buyers have been in London for sometime, and know the city well, having lived in Chelsea and Kensington before. Now looking for something a little leafier, they’re flocking to Fulham and the nearby areas as it has the connection to the centre of the city that Wimbledon, Chiswick and Richmond lack.

They like Fulham’s amenities and green spaces. Families are attracted to the educational options that are available in SW6, with places at nursery Pippa Pop-ins as sought after as a spot at Hill House and Fulham Prep.

Most wanted, amongst these groups are the ‘Lion Houses’ of the Peterborough Estate. These sprawling Victorian terraces are big, with plenty of potential to get bigger if the previous occupants haven’t burrowed into the basement or climbed into the attic already. Previously selling for around £750 to £850 per sq ft in 2007, these behemoths have now climbed to around £1000 per sq ft, which puts a £2m price tag on entry level properties on the estate, rising to around £4m for a six bed. When people realise they can buy a freehold house in SW6 for the price of a two bed in Chelsea, things tend to be decided quite quickly.

Help line
So if business is good in the upper end of the market, it’s positively electric at the entry level, and much of this can be put down to the government’s recent introduction of the Help To Buy scheme.
This, for anyone lucky enough to not have to concern them selves with assisted buying, is the Conservatives fairly revolutionary new plan that offers equity loans to both first-time buyers and home movers on new-build homes worth up to £600,000. It enables buyers to contribute just 5% of the property price as a deposit, while the government gives you a loan of 20% of the price, meaning you then need a mortgage of up to 75% to cover the rest.

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Fuelled by the government help-to-buy scheme and access to easy finance, buyers at the bottom end of the market have rushed in pushing smaller 1-2 bed flats in Fulham up over the £500k mark for the first time. The impact will be felt across the market hiking prices higher still as it filters up the ladder, until the help-to-buy tap closes leaving a potentially crumpled market, un-reachable by those at the bottom and un-achievable to those at the top.

You won’t be charged any loan fees for the first 5 years, and then following that, you’ll be charged 1.75% of the loan’s value. So far so intriguing, and that’s certainly been the case since the schemes opened for application in October. The government recently said that: ‘more than 2,000 people have put in offers on homes under the Help to Buy scheme, totalling £365 million of new mortgage lending.’ Applicants will face average monthly repayments of around £900 on an annual household income of around £45,000. This means a Help to Buy mortgage represents 24 per cent of borrowers’ gross income. So what does all this mean for the fair suburb of Fulham? Change.

Help to Buy is driving a massive increase in demand in the sub £500k market. Prices in this “bottom” part of the market in London are therefore going through the roof, with many properties selling in sealed bids within days of hitting the market – for context a recent seller asking £375k had 55 viewings in the first day, 120 viewings within 48 hours and sold for over £450k after 3 days, while another came on at £375k and sold for over £400k. And at the moment, that’s the norm.

“Help to Buy is heating up the property market from bottom,” says Brik co-founder, Chris Littlewood. “The scheme is handing extra cash to people selling sub £500k houses, meaning they can now pay more for the next rung up (large flats or small houses around £750-£1m). This will filter all the way up the ladder as the new year progresses. Only an increase in sub £500k stock could dampen this extremely overheated section of the market in Jan/Feb.”

Looking forward
All this might sound quite stressful, and sadly it will mean the dream of becoming a Fulham homeowner remains an up hill struggle for some, but for others, this is an exciting, if uncertain time. Another effect of the Help to Buy scheme is that it could reduce rental demand as those people who have been renting for sometime, begin making serious moves towards buying. This, in turn, could reduce rental yield – which is calculated by dividing the gross annual rental income by the purchase price (or the current valuation) – making buy to let landlords think again. Low and falling rental yields and extremely high capital values could precipitate a large amount of stock hitting the market in 2014 as landlords and owners cash in on their investments.

“This increase in supply could counterbalance the increase in demand caused by Help to Buy,”

Says Littlewood. “This could then lead to a slower year in 2014 than 2013 in terms of capital growth - possibly only 5-10% increase. At the moment, the market is very hot, it’s time to step back and take stock.”

So 2014 is shaping up to be another interesting year. The National Institute of Economic and Social Research (NIESR) estimates prices will increase by 5 per cent, and the Telegraph recently reported that forecasters are suggesting a property price rise of around 20-30 percent. Industry forecasters are predicting an increase in property sales as sellers gain confidence and return to the market, with Hamptons predicting a 9% increase in sales while Savills posits an even higher 15% increase in 2014.

Looking even further ahead, 2015 could see interest rate increases and policy changes following the general election (with Help to Buy looking like a strong candidate for the chop), this could lead to a sluggish 2015 market, and perhaps even a mini property slump.

Many of the statements above are based on fairly long-term forecasts, but as stated previously, there is enough data to make accurate predictions. But even so, no one will get everything right, except for one thing that is: What ever happens over the next two years, Fulham is going to continue to be one of the most desirable and exciting post-codes in London.