London review

A year of change – and yet reassuringly the same

Robin Johnson

MD, KFH

It has been an eventful and truly difficult year for millions of people. Energy bills are double what they were a year ago. Mortgage rates, hit by both the rising base rate and then, far more alarmingly, by the plunge in long-term gilt prices, have gone up considerably since anyone needing to remortgage in the next 12 months last took a deal. Food inflation has soared. Taxes went up in April. Stamp duty and the national insurance hike went down in November – the only policies to have survived Jeremy Hunt’s cull of his predecessor Kwasi Kwarteng’s mini budget. And taxes went up again after Rishi Sunak was formally appointed prime minister and Hunt was retained as chancellor.

The turmoil has hurt people.

In the country’s capital, as in so many urban areas across the UK, it’s a tale of two cities. But while in Britain’s other cities the financial divide exists largely between Britain’s rich and its poor, in London, a vast amount of wealth is owned internationally.

That doesn’t mean the capital is immune to the economic shocks that have rocked us all, but because the pound has struggled this year, foreign money looking for a home has been pouring in.

A report published over the summer by Benham and Reeves showed around £91bn of property in England and Wales is now owned by foreign investors. Half of that is in London.

Figures from the City of London Corporation show London continues to hold the top spot for attracting While it’s tempting to submit to despair in the face of dire headlines day after day ... most people are ignoring the circus in Whitehall and getting on with life – despite very real hardship

foreign investment in financial and professional services.

In this sector – the UK’s flagship export – the capital pulled in 114 projects in 2021, well clear of Dubai with 104 projects, Singapore with 103, New York with 54, and Paris with 51.

As central government was engaged in its game of musical chairs, London mayor Sadiq Khan announced half a million pounds of funding for the Opportunity London campaign, aiming to increase foreign investment in green infrastructure and real estate projects.

Unlike the rest of the UK, London is and has long been an international city. The troubles we face at home of course affect the capital’s economy insofar as households and businesses must share in the pain of inflation over 10 per cent and energy bills that have risen by hundreds of pounds a month.

But London’s economy is far better placed to withstand the economic turbulence that lies ahead. The rise in corporation tax slated for April – from 19 to 25 per cent – will be absorbed by the City.

The jobs market remains seriously tight, and wage inflation in financial services in particular is soaring well above the rate of consumer price inflation.

The housing market here has always operated on a different basis from the rest of the UK because of all of these factors.

And while it’s tempting to submit to despair in the face of dire headlines day after day, ultimately, most people are ignoring the circus in Whitehall and getting on with life – despite very real hardship faced by so many.

That said, there is evidence that the rampant house-price inflation experienced over the past year or so is beginning to slow – no bad thing given the movement in mortgage rates and affordability. Transactions are what really matter to the health of the economy.

Halifax’s latest house-price index showed London house prices rising by 8.1 per cent over the past year to September, with a typical home costing £553,849. The capital’s average property price remains by far the most expensive in the country – which in itself demonstrates the influence that foreign investment has on property prices.

The rental market is also strong. Rightmove’s latest lettings index put average London rents up by 16.1 per cent over the year to September, to £2,343 a month. This is shifting tenant demand trends, and when this is coupled with the reversal of the pandemic-induced escape-to-the-country trend, rents look set to rise farther still.

More new rental properties are available in every region except London. Even so, across England and Wales tenant demand is up 20 per cent compared with last year, and the number of properties available to rent is down nine per cent.

It’s not good news for those forced to keep renting as mortgage rates make purchase unaffordable for the time being, but from the market’s perspective it’s a bright spot. It would be complacent to assume the capital will always be able to deal with what is thrown at it, but on past evidence both recent and historical, it is a bold person who would bet against it. M I