The changes in UK property tax has lowered sales dramatically at the high end causing some buyers to worry about the liquidity of their asset. This has also led to a lot more high-end stock coming to the market (providing the opportunity to rent a multi-million pound house more easily). Currently, rents are also so low as a percentage (or yield) of the property value, that renting can often be the same price as taking on a large mortgage without the upkeep and maintenance costs normally associated with ownership.
With the view that house prices in PCL are generally on the decline for now as a result of ATED, the SDLT 3% increase on second homes, many HNWI/UHNWI take the view that they can put their money to work in other asset classes, which provide a gross yield of over 3% (exceeding the amount of return one achieved from a PCL rental investment) and which have greater liquidity and lie outside the chancellor’s taxation plans that shake the top end of the housing market. Most HNWI will wait for a more certain tax environment before committing capital – tax uncertainty usually leads to inactivity.
For those domestic vendors who are renting out their property and renting themselves elsewhere, this is more often than not because they are unable to sell rather than because they want to “check out a new area”. Income tax is payable on rent which, after mortgage payments, tend to make the concept for a single family of using rent received to pay for rent due un-economical.
In terms of categorising the renters: HNWI employees living in London from the US will almost always rent; they tend to have properties in the States and associated costs and want to live in particular areas of London near good private schools and easy reach of their offices. The flexible nature of their employment contracts and the very high cost of living in PCL versus say New York will also be a factor. Lastly, some may also have housing allowance for rent which is not transferable to mortgage payments in the event they buy. The French/Italian and Greeks have been buyers up to about 18 months ago. Their aim was to protect their assets from a fall in the Euro and as this has now happened, those coming over are seeking to rent. The present currency exchange makes the purchase of property too expensive. Historically, the Chinese have not rented and the GCC market remains very seasonal.
The downside of renting is that as soon as the property sales market picks up, you can be given notice and forced to find another home in a price increasing market and with less stock. The fact is that it’s never really your home: any minor works or renovations need to be agreed with the landlord, who will always seek a rental increase to cover costs and you will have to move out. Renting means you do not have an asset to pass to your children and finally, you will miss out on property price increases, which are guaranteed in the long-term because we are building fewer houses than the rising population needs.
A French banker whom I know moved to the UK in 2004 and rented and has continued to rent to this day. Over time his rent has gone up and whilst he has spent over £1m in rent over 12 years, he has no asset to show for it. In the meantime, the Greater London House Price Index has increased by 95.95% according to Land Registry – an increase that he has missed out on.
By Charles Curran, Principal and Market Data Analyst