Blog Post No. 193
Renting More Affordable Than Buying, HK Investments, The Peninsula – 19th Sept Property Bulletin
Rent Cheaper Than Mortgages: London’s Fastest Priced-Out Workers
In a significant shift, renting a home has become more cost-effective than buying one in London, marking the first time this has occurred since 2010. This transformation is primarily attributed to the surging interest rates, which have made the dream of homeownership increasingly elusive for many Londoners. Despite skyrocketing rental rates, London’s boroughs are among the hardest-hit areas in the country, where mortgage payments now surpass the average cost of renting.
A comprehensive study by Online Mortgage Advisor delves into the rapidity with which local workers are being priced out of the property market. This study meticulously assesses how property prices have outpaced local wages over the past decade by measuring the ratio change between median house prices and median annual salaries in 2013 compared to 2022. This analysis spans 330 local authorities across 12 regions in Great Britain. A higher ratio indicates a more significant growth in the disparity between property prices and local incomes, signifying that workers are being priced out of their communities at an alarming pace.
– Londoners have experienced the fastest pricing-out from the property market nationwide, with an average property price-to-salary ratio increase of 3.78.
– Over the past decade, properties in all London boroughs have become increasingly unaffordable when compared to average salaries.
– Kensington and Chelsea, Hillingdon, and Barking and Dagenham emerge as the worst-affected London boroughs, according to the research.
The research reveals Greater London as the region where workers are facing the most acute challenges. It also pinpoints the specific boroughs experiencing the most significant shifts in affordability ratios.
Kensington and Chelsea have witnessed the most substantial change in property affordability when compared to local earnings. A decade ago, full-time workers typically expected to spend 31.27 times their annual salary to purchase a home. However, by December 2022, this figure had risen to 38.12 times their salary, marking an increase in the ratio of 6.85.
In contrast, house prices in Brent experienced the slowest growth compared to local salaries, with a ratio change of just 1.03. It is essential to highlight that workers have been priced out of the property market in all London boroughs examined, with property prices consistently outpacing salary growth across the entire capital.
– Property prices in our analysis were sourced from The Office for National Statistics (England and Wales) and ROS (Scotland) and are accurate for Q4 of each year (2013 & 2022).
– Median annual gross salaries for Great Britain were obtained from ONS.
– The property price-to-salary ratios from 2013 and 2022 were compared across 330 authorities nationwide to derive our results.
The Peninsula London Sets a New Standard for Luxury in the City
The Peninsula London has finally opened its doors to the public after more than six years of anticipation. Nestled in the heart of Belgravia, just steps away from Knightsbridge and Buckingham Palace, this regal property offers 190 rooms and suites, along with 25 high-end residences, elegant public spaces, and the renowned Peninsula Spa brand.
While London boasts its fair share of impressive hotels, The Peninsula’s arrival signifies a significant advancement in the city’s luxury experiences.
Guests can expect an array of luxury vehicles at their disposal, including a vintage 1960 electrified Austin taxi, four bespoke hybrid Bentley Bantayagas, and a meticulously restored 1935 Rolls Royce Phantom. Beyond transportation, the hotel offers a variety of bars, retail spaces, and restaurants to cater to diverse tastes.
Guest rooms are designed to entice with bespoke furnishings, mahogany-paneled dressing rooms, and bathrooms adorned with Honey Onyx stone. The grand lobby exudes an air of opulence, with a grand piano overlooking the hotel’s signature afternoon tea offering.
However, it’s the Peninsula Suite that truly excites. This exclusive accommodation boasts a private screening room and a dedicated fitness center. Guests opting for this suite can even add an additional Terrace Suite solely for entertainment purposes, encompassing the entire sixth floor with a total of seven bedrooms, making it one of London’s largest suites, spanning 1,490 square meters.
The rooftop restaurant, Brooklands, embodies the Peninsula’s thematic excellence. The entire space pays homage to motorsports and the historic Brooklands racing circuit in Weybridge.
Before ascending to Brooklands, guests are greeted by another lobby adorned with the actual nose of a Concorde aircraft suspended above a rotating vintage race car exhibit on loan from the Brooklands Museum. Two elevators, designed to resemble hot air balloon baskets, swiftly transport guests to the eighth floor, where they’ll discover rare motoring memorabilia and an authentic wing from a noble British Vickers aeroplane. The restaurant’s furniture is even modeled after Bentley and Rolls Royce seats.
Mortgage Rates Fall Below 5% for the First Time Since July
The most affordable mortgage rates have dipped below 5% for the first time in two months, alleviating concerns of unexpected interest rate hikes. Yorkshire Building Society introduced a 4.99% five-year fixed-rate deal on Friday, marking its most economical offering since June’s end. Concurrently, Coventry Building Society reduced its most cost-effective five-year deal to 5%.
According to broker L&C, between mid-July and this week, the average two-year fixed-rate mortgages from the ten largest lenders decreased from 6.25% to 5.9%. Moneyfacts, an analyst, reports that the average for all five-year fixed-rate deals is slightly higher at 6.11%.
Barclays, reacting to recent reductions in market funding costs, joined other lenders in cutting select fixed rates on Friday. For instance, the rate on its five-year fix for a buyer with a 40% deposit was reduced from 5.37% to 5.27%.
Earlier this week, other high-street lenders, including Halifax and Nationwide, also reduced their mortgage rates. The recent drop in swap rates, which directly impact mortgage pricing, contributed to this trend. On Thursday, five-year swap rates stood at 4.54%, marking a 0.1 percentage point decline in just two days and nearly 0.4 percentage points lower compared to a month ago.
Brokers anticipate that, with diminishing expectations for future borrowing costs, homebuyers may secure a five-year fixed-rate deal at 4.5% by the end of October, as more lenders announce rate reductions.
Ben Merritt of Yorkshire Building Society welcomed this development, stating, “This month’s positive signals from Andrew Bailey, the Governor of the Bank of England, are very welcome.” Bailey noted before the Treasury committee that numerous economic indicators suggest a continued drop in inflation this year, with the consumer prices index falling to 6.8% in July from 7.9% in June.
The Bank of England is expected to raise interest rates one more time next week, increasing them from 5.25% to 5.5%.
These signs of decreasing mortgage rates offer relief to homeowners grappling with escalating costs. However, landlords’ mortgage arrears have more than tripled over the past year, rising from £4 million to £13 million, with some industry experts cautioning that the worst may still be ahead. Homeowners’ mortgage arrears have also doubled during the same period, increasing from £18 million to £38 million, as reported by the Financial Conduct Authority. The total value of outstanding mortgage balances in arrears now stands at £16.9 billion, the highest total recorded since 2016.
Hong Kong Residents Drive Unprecedented Surge in British Residential Property Investments
Sutton, situated in south London, has emerged as a favored destination for international buyers seeking exceptional schools, affordable housing, and close proximity to the capital. Notable educational institutions such as Sutton Grammar and Nonsuch High School for Girls add to the area’s appeal.
The allure of the UK’s universities also plays a pivotal role in attracting buyers. Many parents of international students prefer to invest in property rather than paying rent for their children during their UK-based education. Investing in UK property offers a range of long-term benefits, including rental yields and capital appreciation.
Moreover, residents of Hong Kong are increasingly motivated to invest in the UK due to the soaring property prices and stamp duty rates in their homeland. Although expats and foreign passport holders in the UK are subject to a 2% stamp duty surcharge, it pales in comparison to the hefty 15% surcharge levied on second homes in Hong Kong.
Jonathan Gordon, a sales director at property investment firm IP Global who lived in Hong Kong for two decades, explained that the prevailing political uncertainty in Hong Kong has left its residents jittery and inclined to seek safer investments abroad.
Additionally, stringent Chinese capital controls restrict Hong Kong residents to an annual investment limit of $50,000 abroad, raising concerns about potential further restrictions. The perception of UK property as more affordable, especially with the stronger Hong Kong dollar and weaker pound, has fueled the flow of investments from Hong Kong to the UK.
According to Land Registry data obtained by estate agent Benham and Reeves, Hong Kong investors now own an estimated £10.8 billion worth of property across England and Wales, solidifying their position as the largest foreign property owners in the country.
UK Estate Agents Most Pessimistic in 14 Years as House Prices and Sales Decline
House prices and sales in the UK experienced a decline in August due to high mortgage rates dampening property demand. This has led estate agents to be the most pessimistic about the market in 14 years, according to a prominent survey published on Thursday.
The Royal Institution of Chartered Surveyors (Rics) revealed that its house price balance, which measures the gap between the percentage of surveyors witnessing increases and decreases in home prices, dropped to minus 68 last month, down from minus 55 in July. This reading marks the lowest point since 2009, significantly below the minus 56 forecasted in a Reuters poll of economists.
Rics’ report also indicated that new buyer inquiries, a gauge of housing demand, fell by two points from July to minus 47 in August, while new sale instructions plummeted by nine points to minus 26.
Surveyors reported the weakest assessment of newly agreed sales since the onset of the Covid-19 pandemic when the property market effectively shut down.
Simon Rubinsohn, Rics’ chief economist, commented that the survey paints a picture of a “sluggish housing market with little sign of any relief in prospect.” He added, “Buyer inquiries remain under pressure against a backdrop of economic uncertainty and the high cost of mortgage finance.”
Mortgage rates have surged over the past two years, driven by 14 consecutive interest rate hikes by the Bank of England, contributing to the decline in house prices, transactions, and mortgage approvals.
Rates on two-year and five-year fixed deals have fluctuated in recent months as financial markets reassess the likelihood of further interest rate hikes, but they remain significantly above 2022 levels.
Markets anticipate that the central bank will raise rates by an additional 0.25 percentage points to 5.5% next week in an effort to control inflation.
Estate agents’ expectations for the months ahead have also darkened, with the net balance of price expectations for the next three months dropping to minus 67 in August from minus 60 in July. Meanwhile, the 12-month horizon remained largely unchanged at minus 48, indicating a sharp contraction.
Conversely, rising mortgage payments have boosted rental demand, with survey respondents reporting a net reading of 47 for tenants’ demand and an expectation of rental prices rising in the next three months.
New landlord instructions continued to decline as many landlords exited the sector due to higher interest rates and taxes.
According to separate research by property portal Zoopla, limited rental supply and high demand have pushed rental affordability to its worst level in 10 years, with the average rent consuming 28% of average gross earnings.
Myron Jobson, an analyst at investment platform Interactive Investor, noted that with mortgage rates likely to remain elevated in the near term, buyers would “have little option but to buckle down and figure out how to make the numbers work in the new era of high mortgage rates.”
$56 Million in London Property Linked to Alleged China Crime Ring
In a recent investigation, it has been revealed that at least two individuals arrested in Singapore last month for their alleged involvement in a billion-dollar Chinese money-laundering syndicate have ties to London real estate worth more than $56 million. The investigation shows the international reach of this network, suspected by Singapore police of overseeing “overseas organized crime activities including scams and online gambling.”
All 10 individuals arrested in August were born in China, but nine of them were granted Cambodian citizenship in the past five years. These individuals also hold passports from Cyprus, Turkey, and ni-Vanuatu, according to Singapore police.
Since the arrests, Singapore authorities have seized $1.3 billion in cash, assets, and real estate, marking the largest seizure in the city-state’s history.
One of the arrested individuals, Su Haijin, had ties to a £43.3 million ($54 million) deal to acquire two adjoining properties in London’s Oxford Circus shopping district in December 2021. Su is linked to New Yihao Limited, a company registered in Jersey, an offshore tax haven. While the Economic Crime (Transparency and Enforcement) Act requires foreign companies to disclose beneficial owners, loopholes in the law have been criticized for failing to expose the beneficiaries of trusts.
The investigation highlights the mingling of licit and illicit funds in global real estate markets, driven in part by Chinese capital controls that limit the amount of money citizens can move out of China each year.
Cambodia has become a hub for illicit online gambling operations and cyber-scam rings, with many individuals involved in these activities acquiring Cambodian citizenship. Singapore has been a favoured destination for individuals seeking to park their wealth, resulting in a mixture of legal and illegal money flows in its business and real estate sectors.
Singapore’s recent arrests suggest a shift in its approach to money laundering, signalling increased scrutiny of individuals involved in these activities.