At this current time, central London property prices are around 6% below their (pre-referendum) peak in 2014. It’s common knowledge that the Brexit vote went down very badly in London and the housing market reflected the negativity around the UK’s prospective exit from the EU.
The fact that prices merely slid rather than crashed highlights that the UK in general and London in particular has much more to its economy than the financial-services sector, which expressed a huge degree of concern about its future in a post-Brexit world.
The impact of Brexit was compounded by changes to the tax system and, in particular, the sharp increase in the taxation of buy-to-let landlords. Although the 3% “buy-to-let surcharge” did, at least, have the benefit of being simple to understand, the change to the calculation of mortgage interest tax relief was much more complex and therefore it is hardly surprising that the combination of the two of them (plus the removal of the standard “wear and tear” allowance) put a brake on the buy-to-let market as a whole (as indicated by mortgage figures) while landlords tried to work out what it all actually meant for them.
Any slowdown in the buy-to-let market was always going to be felt particularly strongly in a city such as London, where there has long been an extensive and active rental sector, fuelled by demographics in which a large section of the population are what might be termed “obvious renters” (students, mobile young professionals, international visitors…). Added to this, further changes left international buyers more exposed to capital gains tax and inheritance tax, thereby somewhat negating the impact of the weakening of Sterling making UK-based assets, such as property, relatively more affordable.
With the benefit of hindsight, it was almost inevitable that the principles of the Mortgage Market Review would end up being applied to the buy-to-let market, although it was somewhat ironic that the Bank of England took steps to ensure that buy-to-let landlords were able to afford their mortgages at around the same time as the government was busy making changes to mortgage interest relief.
Whether or not these regulatory changes are shown to be ultimately beneficial, or at least neutral, remains to be seen, what is clear is that they are another point which potential investors have to consider as part of their investment decisions and for some may be enough to put them off further activity. Other regulatory changes may also have had a disproportionate impact on the London market.
For example the “Right to Rent” scheme is far simpler to administer in a place where most renters are UK nationals, or at least EU nationals, than it is in a place such as London, which attracts people from all around the world, with all kinds of ID.
Fundamentals stay strong
For all of this, however, the fact still remains that there is a massive demand for housing in London and that there is a particular need for rental accommodation. This fact has been understood for a long time and hence investors with a medium- to longer-term perspective may see the current price slide as an exciting buying opportunity.