Tepilo analyses the increase in the number of £1m+ homes outside of the capital.
When we talk of £1m+ homes and the super-prime market, we generally think first of London. However, a new study by an independent mortgage broker has revealed that more than half of £1m+ property purchases are set to occur outside of Greater London this year for the first time since records began.
The ripple effect of rising house prices, which have spread out from London in recent times, and a slowdown in the capital – with demand in the prime market falling thanks to a range of factors, including stamp duty and Brexit – has weakened the dominance of the UK’s biggest city.
The study, carried out by Private Finance, analysed Land Registry data for England and Wales, which showed a 195% increase in the number of residential transactions priced at £1m+ between 2011 and 2016. During this period transactions went up by 54%, meaning the number of £1m+ purchases increased almost four times as fast as the overall market.
This rise comes in spite of the struggles in the prime and super-prime markets after successive reforms to Stamp Duty Land tax (SDLT) in December 2014 and April 2016. What's more, the continuing growth in house prices across most of the country meant that the volume of £1m+ transactions still increased by 10% between 2015 and 2016.
Although London witnessed the highest growth in the annual volume of £1m+ transactions between 2011 and 2016, the last year suggests things could be starting to change, with the capital outpaced by six other areas – Hertfordshire, Surrey, Hampshire, Essex, Kent and Greater Manchester – between 2015 and 2016. If current growth trends continue, 2017 will see over half (51%) of £1m+ property transactions taking place outside Greater London for the first time on record. Of course, five of these areas are popular London commuter hubs located in the South East. Four of them are also part of what is known as the Home Counties – the counties that surround and border the capital. So, even though £1m+ property purchases are spreading their wings a bit, they're not moving very far.
Once upon a time, though, the majority of £1m+ property transactions took place in Greater London. In 2011, for example, it enjoyed a 63% share of the higher-end market. Now, however, more and more £1m+ purchases are taking place outside the capital.
London still has by far the highest volume of transactions – with growth of 7,333 between 2011 and 2016; Surrey, in second place, only saw growth of 818, while Hertfordshire in third saw a rise in transactions of 676. Nonetheless, the capital isn't as all-conquering in this marketplace as it once was.
The 51% figure may also prove to be a conservative forecast if the latest UK House Price Index is anything to go by. The index, released in April 2017, found that house prices are currently growing at a faster rate year-on-year in six English regions (East of England, South West, West Midlands, South East, East Midlands and Yorkshire and the Humber) than in London.
In addition, the study found that across England and Wales some of the biggest proportional rises in £1m+ property transactions have taken place far away from the capital since 2011. In South Yorkshire, for instance, the number of £1m+ property transactions grew by 4,800% (albeit from a very low base) and by 2,600% in Swindon and County Durham. Between 2015 and 2016, the biggest percentage rise in £1m+ transactions was in Carmarthenshire, Wales (1,200%).
The research also found that, for mortgaged properties in the £1m+ price bracket over the full five-year period from 2011 to 2016, the average loan to value (LTV) was 54%, rising to 56% last year. This, Private Finance says, suggests that buyers at the top of the market are leveraging substantial amounts of their assets as six-figure deposits.
Buyers operating in the £1m+ marketplace are still, of course, a very small percentage of the overall market, but there are those who argue that the top end of the market needs to be functioning well to support what exists below it. Rising house prices across the country, none more so than in London, are however making buying a home unaffordable for many. In London, in particular, a large family home is out of reach for the majority of would-be purchasers, which means people are looking outwards – to the Home Counties or the South Coast - for cheaper properties that are still within commuting distance of the capital.
With the average UK house price currently around the £230,000 mark, and well above £400,000 in London, the £1m+ market isn't as otherworldly as it once was. For certain buyers in Essex, Kent, Herfordshire and Surrey, it's now a reality too.
The vast majority of buyers won't fall into the £1m+ bracket, although soaring house prices and other variables are seeing this number increase, but if you do it's likely that you'll be turning to private banks and brokers – rather than traditional lenders – to access the mortgage finance you need. Generally speaking, these high-end brokers offer a more tailored, bespoke and flexible service, with buyers often able to leverage unconventional items such as fine art, jewellery or sports car to secure their desired property. Private banks are also more likely to offer interest-only mortgages, offering buyers more choice over when they repay the capital they owe – for example, if they get an annual bonus, they may look to use this to pay off some of their mortgage.
For most, this will seem like a totally alien world – and it's definitely concerning that high house prices across the country are increasing the number of £1m+ homes outside of the capital, the traditional hotbed of the prime and ultra-prime markets. That said, there has always been – and will likely always be – a prime market, and there are those who argue it's an important source of income for the Treasury given the higher stamp duty these buyers pay.
With the current lack of affordable homes and the issues surrounding Buy to Leave – where rich investors buy up properties and then sit on their assets as they rise in value – there will be others who would like to see less rampant activity in this marketplace.