The country market crystal ball for 2014….

A year ago we were, by and large, ‘on the button’ with our predictions of the likely shifts in values for the country house market for 2013 – although not necessarily for the right reasons!

At the time, we said that values for £1m+ houses, in areas with good prep schools and a <50 minute commute, would hold up well for the first half of 2013 – then possibly fall back gradually by 5% – 10%.  For desirable houses further away from the main commuter areas (where values had already slipped back by 5% – 10%) we could see further softening in store.  It was only for larger country houses, estates and – especially – traditional farms with a good principal house, where we could see values drifting up, by 5% – 10%.

So what was it that we got wrong?  Just that, in the event, our predicted fall back resulted not so much from increased choice (which certainly failed to materialise), but from a lack of fresh buyers coming to the market.

Looking to 2014, exuberant predictions of rising values in the mainstream markets (bearing in mind that we are talking about mean values of ca £218,000 for the south east) give reason to pause and consider just what influences are at work at the various levels of the property market, before drawing our own conclusions as to how this will impact on the ‘country house’ market – particularly when it comes to the next five years.

What certainly seems bizarre that, at a time that many agents are generally bemoaning  a lack of activity and pressuring their clients to reduce asking prices (particularly over the £1.75m – £2 million level), their research departments seem to be playing to the gallery of sentiment as to what owners would like their properties to be worth.

As we blogged in August, there is no such thing as ‘the’ property market – more a series of micro-markets where properties in different areas and price ranges enjoy wildly different levels of supply and demand.  Of course, each is fundamentally influenced by the level of relative affordability – and this is where the mainstream market (values being underpinned by higher proportions of borrowing) are enjoying a significant resurgence of activity and therefore sale values – aided largely by government backed ‘Help to Buy’ initiatives, kicking in onto already low borrowing rates.

Our concern is that the influences behind these ‘blanket’ predictions will fuel unfounded price  expectations on the part of owners of larger country houses, a market which remains far more dependent on capital wealth (and the willingness to part with it!) than on borrowing; certainly, at prices over the £1.75 million level, there seems a general reluctance on the part of buyers to part with more than they have to.  Whilst we examine the reasons behind this in our accompanying blog ‘What value are house price forecasts…?’, here we draw our own conclusions as to how ‘our’ markets are likely to develop in the coming year……………

For 2014, over the £1.75m/£2m level, the market remains  susceptible to caution being exercised by buyers – who, as we write, still seem far from confident that the worst of recession is over.  Consequently, we doubt that sale values in this sector will increase noticeably in the short term, unless:

• More buyers rediscover the conventional move ‘out into the country’ from the better London suburbs.  Over the last two years there has been an understandable reluctance on the part of owners in prime suburbs (such as Wandsworth, Putney, etc.), to sell and move out to the country – as they wait for the ‘champagne fountain’ effect to spill over from the staggering performance of the central London markets.  As the latter hinges substantially on demand from overseas buyers (encouraged by a cheap £ and aggressive tax regimes at home) – buying mainly from  overseas owners – it is doubtful that this will happen.
• There is a recovery in net income levels.  Over recent years, inflation has gradually gnawed away at largely stagnant salary levels, whilst increases in private school fees has forced a growing number of potential country house buyers to divert a hefty proportion of their budget into a school fees ‘pot’.  Meanwhile, the ‘City bonus’ effect has evaporated (even if lenders hadn’t stopped including bonuses when computing lending multiples, those that survive are increasingly being paid as share options, not salary…).
• A house is energy efficient. Two years ago, EPC’s were of little importance; now, the ‘revenue’ cost of running a country house has a noticeable impact on demand.  More and more buyers are ignorant to the prospect of energy costs continuing to rise at double the rate of inflation, as long as we import the stuff….
• We see a softening of Stamp Duty Land Tax – now 7% for property purchases exceeding £2 million (and what effect on government tax receipts has this play to the ‘politics of envy’ sector had?)
• There is a growth of real doubt as to the credibility of a 1% ‘mansion tax’ on all £2m+ properties, should Miliband (or Cable, the instigator of this crazy idea) secure the keys to no. 10….

Over the £3m – £4 million level (the ‘cream’ of the country market where, to the right buyer, it is ‘only money’), the market can be predicted to remain one where scarcity of choice and the appeal of an individual property leave it as anyone’s guess as to what a particular property might realise……….