The London property market never stands still. Having worked in this market for the past 18 years, I have witnessed its ups and downs, its resistance to some outside factors and sensitivity to others numerous times.
This experience has allowed me to draw some parallels between the state of the property market in 2007-2009 following the financial crisis and the present state it finds itself in.
One of the biggest similarities between then and now is the extent to which the market is influenced by uncertainty. This has a significant impact on demand, leading to a change in buyer sentiment from optimism to concern. As a direct result of this, pressure is put on the market and a correction in prices follows.
However, it needs to be noted at this early stage that only a section of the market is impacted. For some, life must go on. Uncertainty has little impact on those who need to move because of an event such as a death, job change or family addition.
Similarly, where homeowners are looking to release equity for one reason or another and are happy to accept a 10 per cent reduction in price, they proceed in the knowledge that previous capital growth has helped them balance the books. So while there is a suppression in demand overall, a certain amount of activity in the market continues regardless of the uncertainty – or, indeed, of any other external factors.
While most active buyers are adversely affected by uncertainty, it can in some cases be welcome news for homeowners. They can choose to hold on to their properties and wait for an attractive offer to come in or opt for the lettings market until further economic or, in the present case, political clarity develops.
With many sellers choosing one of these two paths in both 2007-2009 and today, the lettings market has benefitted considerably. This helps to contribute to the chronic undersupply in the sales market, which, balancing out the fall in demand, aids market recovery.
One of the biggest similarities between then and now is the extent to which the market is influenced by uncertainty.
The supply-demand balance was not the only market force that helped the London property market to recover after the financial crisis in 2007. New lending security regulations, put in place following the liquidity issues highlighted by the crisis, increased banks’ confidence in lending.
This encouraged a significant decrease in the rate of interest offered by banks, which made borrowing more appealing and helped increase consumer confidence. Transactional levels picked up again, and the market began showing signs of growth from March 2009.
While there are parallels we can draw between the state of the London property market then and now, some aspects are significantly different. Banks are lending confidently to those who qualify and buyers continue to benefit from exciting interest rates.
And while transactional levels remain subdued, they are still 50 per cent higher than their lowest point in February 2009. However, while we are seeing less activity taking place, pent-up demand remains.
While the cost of climbing onto the first rung of the property ladder in the capital remains an issue, my advice to buyers is not to let uncertainty hold them back, but rather to take advantage of the opportunity presented by the market currently.
It is rare to see all factors in the property market aligning in favour of the buyers, but with the present low volumes and the softening of prices, this is where we find ourselves.
To those who’ve been looking to get onto the property ladder, this is the market you’ve been waiting for.
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