£0 value apartments!

The repercussions following the dreadful Grenfell tragedy back in 2017 will forever be with the families and friends of those that lost lives. Nearly 30 months on and you will be forgiven for thinking that any affected tower blocks have been dealt with when it comes to cladding. Those that live in modern private developments will certainly be forgiven for thinking they are not affected by such problems. However, this is far from the truth.

Sways of mortgage valuations conducted on properties that are in some cases no more than a year old are being returned by surveyors at a £0 value. This does not mean that your block is necessarily deemed as unsafe, more of a confusion as to who will foot the bill if the block does have any aluminium composite material (ACM) cladding that needs to be rectified. Don’t be fooled by thinking this is confined to visible cladding itself. We have had two £0 valuations on brick built blocks of late, one of which was a Victorian building. On that particular building there were questions over the materials used in the roof and the other was the insulation used between the two penthouses, nothing to do with the flat itself.

Now, anything over 18m in height (usually 6 storeys) will most likely be zero valued, unless there is a very comprehensive fire report to show there is no risk. As with any survey inspection, the scrutiny can vary from different surveyors and the lender associated. However, a surveyors job is to both protect you and the lender against exposure and, given the seriousness of these new legislation’s, you will be hard pushed to simply substitute one lender for another that is more lenient.

The report themselves can take some time to conduct. Just trying to speak to a fire safety expert is virtually impossible as they are so busy being pulled from pillar to post. When they finally get around to conducting the tests, samples need to be taken away before collating the results and putting the extensive document together.

So what can be done if I have been affected?

Well, firstly if you are concerned, thinking of selling or remortgaging and living in a tall tower it is worth contacting the management company and asking if they are aware of any issues and, if so, have they made the relevant steps to testing and rectifying?

Even to this day we are agreeing sales in blocks that were not affected in the past and the management companies seem oblivious to the problem. At the very least they need to get the ball rolling.

On my block in Dalston Square, Hackney all the residents had a letter informing us that if we are thinking of selling or remortgaging anytime now until the Spring to forget it. Surely this cannot be fair. What if someone is coming round to renewing their mortgage and now on a higher standard variable rate?

What if you are really desperate to sell?

I have spoken to a number of vendors looking to take action against the management companies and freeholders. In Greenwich a group of owners at New Capital Quay are pioneering this approach by bringing a case against Galliard Homes and Roamquest Ltd, a firm owned by Galliard Homes Ltd, under the Defective Premises Act (1972) which, if successful, could act as a test case. The residents are claiming for other costs including loss of income, reduction in property value, insurance premium increases and distress and inconvenience.

Petitions, social media campaigns, demonstrations and lobbying your MP are all worth doing as many of these big companies do not want the publicity.

The question of course is who pays for the bill should works need doing?

The developers will say they built to regulations and its not their fault those goalposts have been moved. The management company will not want to foot the bill and so, as usual, the shift goes to the homeowner.

At the 11 New Capital Quay blocks the NHBC is paying for remedial works but this will not be completed until 2021. Does this mean a lender will not consider exposing themselves until then?

Either way it is a total mess and one I believe the government should be taking the reigns and making funds available for. It’s not as if anything else is going on politically at the moment!

New kitchen or new buyers?

One of the main questions I get on valuations is “should I do works on the property before selling?”.

Generally speaking, the answer is no. Minor repairs and a lick of paint are simple cost-effective ways that go a long way to create a more desirable space. However on the whole, drastic changes like a new kitchen, bathroom or even a loft conversion are not usually the way forward. Yes you will add value, especially adding square footage in the form of an extension or loft conversion and, with the latter, you could achieve a greater return than you outlay. However, is it really worth the time and effort if you are just going to sell straight away?

If you are doing it for your own needs and will enjoy the fruits of your labour then go for it. Truth be told, if you are thinking of doing works just to sell I wouldn’t go out of your way to put your own touch on it, different buyers have different taste and you can’t guarantee your refurbishment will appeal to buyers. I’ve been on countless valuations where the owners are living in tired homes and they think a B&Q kitchen (other kitchen outlets also available!) will get them an extra £50k. I just think to myself, why did you live like this for so many years when you could have enjoyed a new kitchen and bathroom yourself!

Just by changing such rooms is not enough to appeal to new buyers and, in some cases, can put prospective buyers off further as they would rather have a say in the finish, spec, colour, etc.

Traditionally in the areas I cover, namely Shoreditch, Hackney and Bow, the creative buyers could see past even the most odorous of pig sties and have a vision of the space they wanted to create. In fact, I have been involved in a number of sales whereby a run-down probate house has sold for between £30k and £50k less than a nice house on the street. This is despite it needing over £100k works to make it liveable. It seems the worse the condition, the more desirable it became.

Times have changed of late and I am experiencing a noticeable swing in the pendulum. The demand for really poor properties such as probates is still present. However, now it has to be the right price and those that are immaculate are getting a noticeable increase in viewing activity, multiple offers and even premium prices achieved. Also, those in the middle i.e. the tired properties needing more minor cosmetic work such as ex buy-to-lets are really struggling more than ever.

So what are the reasons for this?

Well, I believe there are a number of factors that have led to this change in sentiment. Firstly unfavourable tax law changes for buy to let landlords has meant many have exited the market of late leading to a glut of properties coming on for sale that have been rented for years and are generally in no more than average condition. Areas such as Hoxton especially (which has a large density of rented ex-local authority flats) has seen huge dips in prices, more than the average for Hackney. Is the condition of the properties the main factor for the price dip however?

The demand for such stock in general is low at present anyway as they have historically attracted buy to let investors, the very same people that are offloading or looking outside of London for bigger yields. This though doesn’t explain the fact that the few lived in and immaculate flats are selling for a premium in the very same area. For example, we recently sold a very nice two bedroom ex-local authority for £462,000 whilst struggling to sell an average 3 bedroom in the next block at £450,000. That suggests to me that the difference in condition is a big factor as two beds have historically sold for around £50k less.

There is a theory that the 3 bedroom are less desirable as they are prime for investors as opposed to 2 beds which still attract first time buyers and those looking for a home to live in. Surely then you are better off buying a tired 3 bed and sprucing it up yourself?

And there’s the issue. Either the first time buyers are not even thinking to search the 3 beds (which I doubt), or my theory is right and the well finished properties sell for so much more now.

That still doesn’t answer why this is the case though. The fact that building costs are now much higher than they were two years ago may have something to do with it. Could this be a result of Brexit with more hard working and cheaper eastern European workers migrating back?

Stamp duty may have also been a factor. Since the increase of 3% for second home owners was introduced the obvious result has also been a decline in investors, not only buy to let, but those looking to add value by refurbishing themselves. I’ve lost count of the number of times I have seen a property languishing on the market at a fraction of the price it was two years ago and been tempted to dip my toe in myself. However, the extra 3% stamp duty takes a huge chunk out of any benefit once you factor in the higher refurbishment costs. This is obviously not as pertinent now with the stamp duty holiday although I haven’t seen a huge uplift in investors since.

All of which are contributing factors. For Hackney and Shoreditch though I have one more theory…the demographic of buyer. Having seen the change of East London over the last 15 years it is easy for me to notice the different buyers now coming to the area. Whilst heavily bombed in the war, Hackney is still flush with lovely period property. Historically it was always the cheaper alternative to the likes of North London’s Islington or Crouch End and thus attracted the artists and creative types. Whilst Shoreditch is still a huge creative hub, many young millennial’s can only afford to rent in the area. The older artists are migrating out of London to places such as Margate and the buyers now seem to be more blue collar workers such as bankers and solicitors i.e. those with less time, effort, inclination (and dare I say creativeness) to do the works themselves.

Maybe one, two or even none of these theories are correct and it will be interesting to see how it all pans out in the future. Markets are constantly evolving and this year has been a rollercoaster thanks to Covid-19 and the stamp duty holiday. Brexit will rear it’s ugly head soon which will be another bundle of joy we can all look forward to!

Stop blaming Brexit – The real reason for the flat London housing market

If you have had your head buried in the sand of late you may not know that the London housing market is very stagnant on the whole. According to Halifax, house prices are falling at the fastest rate in nine years. In the past I have taken such reports with a pinch of salt. They tend to focus on the worst hit locations around the UK, dramatize and apply the shock headline to everywhere. London itself has always had its own market and on the whole it has been a resilient one since I started in this game over 15 years ago. I have seen the cycles and I have been fortunate enough to experience a very buoyant, fast paced East London market. However, this time is different.

My experience as a sales director meant I got to experience a number of different locations, overseeing 6 offices in the City Fringes. Better yet, I recently tasted the online/hybrid world which, for many of its faults (and that is a whole other story altogether) allowed me to oversee the whole of East London and West Essex just as the market turned. What interested me was the fact that the suburbs were outperforming the more central locations, a complete turnaround from just a few years ago. Back in 2011 Hackney prices were nearly doubling in the space of a year or two whilst the burbs…. well burbled along. Two years ago it all changed and yes Brexit had a lot to do with that. The first hit will always be the more Central locations. The Bloombury and Clerkenwell offices I was overseeing at the time were hit hardest. Those markets are dominated by buyers that simply have no need to rush into a sale. It’s fuelled by a want and by investment rather than a need. The same goes for the sellers. They don’t need to sell and won’t drop prices to do so. As you go further out however, you then factor the need to move such as schools and growing families.

Flash forward two years and this trend has continued and magnified. Only now the number of house sales has dropped significantly, even in the suburbs. Darn Brexit are the cries as I visit prospective sellers. Only I have never heard of a couple looking to start a family not wanting to up size because of Brexit. The fact is this. There are a number of changes introduced by the government, all of which have stifled the London market. Prime central and city fringes has definitely felt the impact of the stamp duty changes for investors and the fact they can no longer offset their mortgage interest fully when paying capital gains tax. Brexit has meant a loss of confidence in the same market and nothing is worse than an uncertain one. But lets focus on the suburbs itself. Yes all of that central London negativity and lack of investors will impact the suburbs slightly but there is one major factor I think most people have overlooked….Help to buy!

If you were to Google “Help To Buy pros and cons” you will get a whole list of why you should/shouldn’t consider it (again I could write for days on that one).

House market decline

But you will be hard pushed to find what I am about to tell you. This is my theory on why the London market as a whole is so much tougher now. Most agents will tell you that the cheaper stock is selling while the big houses are sticking. That is complete rubbish in my opinion. In fact whilst working in the suburbs I had no problem finding buyers for houses from £750,000 to even £1.75m. A house I had in Snaresbrook at the latter price had more viewings (and offers) on it than some of my £350k flats. One of those offers came from a family selling their house in Wanstead through me at £950k. That property had so much interest I had to beat them away. The problem came as we went further down the chain. Selling a one bedroom two year old apartment at £350k close to Victoria Park in East London should be bread and butter stuff, especially since it had little to no growth since purchased off plan and yet I struggled to get a viewing, let alone offer. This was a common theme. So how can this be?

What props up any market?

Answer: First time buyers. So where are all these people?

Well, ask yourself this. Why would you buy a two year old apartment, generous sized ex-local authority flat or period conversion (once so popular) with a slightly older kitchen and tired bathroom when you can put 5% down on a brand new apartment and get a 20% interest free top up loan from the government?

Its not that these new builds are people’s first choice, far from it, but with that kind of incentive when deposits are so hard to come by, it’s seen as a no-brainer. So the government have succeeded in their vision to help first time buyers get on the ladder and at the same time encourage more housing development. Job done right?

Well yes and no. Historically government intervention in the housing market seems to fix one problem but create another. Or maybe this is intentional. After all, house prices are dropping making everything more affordable. Maybe this time they have it spot on. It seems no matter how much a resale property gets reduced, the lack of activity doesn’t change. When there are no buyers at the bottom of the chain, there are no buyers. Most agents are just scratching their heads…unless you are in the New Homes game. If you are lucky enough to be selling a scheme with help to buy you will know a very different story. Just recently a scheme in Hackney Wick with around 44 new apartments sold within a week. That’s where all those darn people are!

Put aside the negative impact on the rest of the market for a second, we’ve had a good run guys, let the youth of today have their moment. However, my fear is this. What happens when these new builds are no longer new and the new buyers cant take advantage of the help to buy because of it?

In two years time when you want to sell your flat and pay off that government loan but you now have no buyers either. Couple that with the fact you have probably overpaid for your spanking new apartment in the first place. You see developers have cottoned on to the fact that these help to buy flats are selling like hot cakes and just inflating the prices. What is going to happen if after Brexit this uncertainty continues, the house prices continue to tumble and you are sitting on a government loan that you will, at some point (5 years) need to pay interest on?

Just ask the people that took advantage of the scheme 5 years ago. This could all end with a bang, or more pertinently with this side bubble the government has created, a pop!