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Rental role reversal: how stamp duty has shifted north London's prime property market

PUBLISHED: 11:46 13 March 2017 | UPDATED: 13:04 13 March 2017

Wealthy families are choosing to rent on The Bishops Avenue to save money on stamp duty. Photo credit: Polly Hancock

Wealthy families are choosing to rent on The Bishops Avenue to save money on stamp duty. Photo credit: Polly Hancock

Archant

Stamp duty has been causing headaches for north London agents and homeowners alike, and now we have the data to prove it. Read the report from the new property landscape in Hampstead and Highgate, where the prime renter is king.

Prime renters are not prepared to compromise when it comes to space or locationPrime renters are not prepared to compromise when it comes to space or location

It came in on April 1 last year, and to north London estate agents it feels like a nasty joke that’s gone on for too long.

Changes to Stamp Duty Land Tax (SDLT) bought in by former Chancellor George Osborne introduced an extra 3 per cent tax for second homes. This was on top of the 12 per cent levy on property purchases over £1.5million that was bought in for December 2014.

Any hope that Philip Hammond would repeal his predecessors charges were dashed with last week’s Spring Budget, which had little to say where property was concerned.

Almost a year on we now have enough data to back up what north London estate agents have been saying since the summer: the bottom has dropped out of the sales market, giving rise to a new class of renter (and some rather bemused new landlords).

George Osborne's stamp duty changes have seriously impacted the London property marketGeorge Osborne's stamp duty changes have seriously impacted the London property market

Land Registry figures show the number of properties sold in May 2016 after the April changes came through as 98. For context, in February 2009 at the height of the financial crash transaction levels dropped to the all time low of 89.

Unlike the months immediately after the crash, sales volumes have been much slower to recover. Five months on in July 2009 there were 224 sales. The latest figures for October 2016 show only 113 sales that month.

Conversely, the rental market is booming. Data for Q4 from B2B property data service LonRes shows that there has been an 18.5 per cent rise in new instructions annually in what they class as Prime London, which includes the postcodes NW1, NW3 and NW8.

The double whammy of SDLT means owners of properties above the £1.5million mark are struggling to sell, whilst those who previously would have bought are choosing to rent instead.

Prime London addresses such as Hampstead are a big draw for Iranian ultra-high-net-worth investorsPrime London addresses such as Hampstead are a big draw for Iranian ultra-high-net-worth investors

This has translated to multi million pound homes in Hampstead, St John’s Wood, Regent’s Park and Hampstead Garden Suburb increasingly being made available to rent for anywhere between £3,000 and £30,000 a week.

Reluctant landlords or accidental landlords are just a couple of names being bandied about by experts and the media to describe this new class of homeowners who are surprised to have found themselves having to look for tenants after the SDLT hike.

“Reluctant or accidental, it’s those who would have liked to sell but either can’t sell or won’t sell for the price they could achieve for it at the moment,” says Marcus Dixon, head of research at LonRes.

“They haven’t really come to terms with the fact that they’re not going to be selling their property yet,” says Glentree associate director Amit Soni.

Security is a major concern for tenants renting homes at this level. Photo credit: Polly HancockSecurity is a major concern for tenants renting homes at this level. Photo credit: Polly Hancock

The high rate of taxation has generated a new wave of savings-savvy tenants looking to rent rather than buy. Figures from LonRes show a year on year rise of 11 per cent in the number of Prime London properties let.

“That half a million pounds you’d be paying [in SDLT] will fund your rental for two to three years,” explains Richard Bryce, lettings negotiator at Aston Chase.

There are several types of tenant in the post-SDLT landscape, but they’re all united by their desire to get the best deal possible.

Some homeowners are now choosing to improve their homes rather than move.

“In quite a number of cases we have rented houses to people who have decided to renovate their own homes,” explains Bryce.

“Previously they would have sold and moved but instead they’re using the money they would have had to pay in stamp duty to make their next purchase to enhance their existing property.”

Corporate types who, back when London property was a rising market, would have bought a home to live in during the duration of a three year contract in a city bank to sell on for a profit are now renting for the duration instead.

“Because buying costs at the top end are so high and the outlook for prices is pretty flat for the next 18 months to two years you’ve got to see the property go up by 10 or 15 per cent just to cover your Stamp duty bill,” says Dixon.

Fears that the Brexit vote would prompt a mass exodus of banks seem to be mostly unfounded. It seems senior financial workers and buyers from overseas would prefer to keep their families close to the excellent schools and cultural opportunities afforded by the city.

“What the rental figures are showing is they seem to want to pay and are willing to pay quite substantial rents to be in the best parts of London,” says Dixon

There’s still an air of caution around currency. These renters are prepared to be patient, signing one to three year tenancy agreements, waiting to see if their children settle in at school and then, if the market is right and the exchange rate is good, they will eventually buy.

“People with that kind of money are obviously holding back to see what happens with the property over here,” says Soni, who has and even spread of local and overseas tenants on his books looking for luxury rentals.

Whatever their reasons for renting, tenants at this level of the market are exacting, prepared to shop around and aware there are discounts to be had.

“You would always associate people negotiating hard on the sales market, but increasingly tenants are just as likely to negotiate on the asking rents,” says Dixon.

That 7.5 per cent gap between new instructions and properties let has given rise to a new kind of renter with an eye for a bargain. LonRes calculates that tenants achieved on average a 7.3 per cent discount on initial asking rents in the last three months of 2016.

Whilst they’re prepared to negotiate on price, they won’t budge when it comes to quality. Space, location and very recent refurbishment are expected as standard. “Everyone wants new kitchens and bathrooms,” says Bryce. Anything remotely dated is out of the question, agrees Soni.

“The people that are renting at the top end are just as demanding in term of finish as those looking to buy, possibly even more so as if you’re renting you’re not going to be doing any more renovations,” adds Dixon.

“They’re willing to pay premium for something that’s in tip top condition and ready to go.”

Whereas once prime renters would have seen three or four properties they’re now viewing ten or more, often with multiple agents, before having their pick.

“They’re very demanding,” says Soni. “They want everything: space, garden, leisure facilities, security, privacy, mod cons, and furnishing, everything top to bottom. You’ve got to imagine someone spending £20,000, £30,000 a week. They expect the best they could possibly get.”

Stamp duty woes aside, it’s hard to feel too sorry for the renters who can wait out uncertainty soaking in their stylish home spas.

“We’ve got houses where you walk into the spa and it’s almost like a boutique hotel in the Maldives.”

As for the reluctant landlords and the stressed out estate agents they’ll probably need a holiday in the actual Maldives to recover.

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