Tech Billionaires leaving San Francisco for London

The allure of London is drawing tech executives from Silicon Valley away from San Francisco, as concerns over rising crime, homelessness, and drug use in the US city drive their decisions. In fact, Americans were involved in half of all prime central property deals in London last year. Notable tech figures like former Deputy Prime Minister Sir Nick Clegg, Instagram chief Adam Mosseri, and Meta’s chief marketing officer Alex Schultz have all made the move to London in the past year.

Reasons cited for this migration include cheaper house prices, a favorable exchange rate, more cost-friendly staff, and government research and tax credits. London’s prime property market, its six airports, and its desirable education system are also appealing to these tech workers. Areas like Mayfair, Kensington, St John’s Wood, Belgravia, and Regents Park have become popular destinations for American buyers.

London’s rising popularity among tech executives is also supported by the fact that Google, Amazon, Apple, Microsoft, and TikTok have all expanded their presence in the UK. London has been named the official tech capital of the world, further solidifying its appeal.

The Transatlantic property trend is also boosted by favorable exchange rates, giving dollar buyers the equivalent of a 30% discount in the UK. London’s average house prices are significantly lower than those in San Francisco, making it an attractive option for those seeking a more affordable cost of living.

Real estate agents have observed a growing influx of buyers from the Bay Area, with Americans taking the top spot in prime central London property deals in recent years. Luxury estate agents are actively competing for this lucrative client base, organizing glamorous events to attract prospective buyers. London’s position as a global hub and its proximity to Europe make it an ideal choice for international tech entrepreneurs looking to raise their children in a global environment.

In contrast, San Francisco is experiencing a decline in quality of life, particularly for families, due to its high cost of living, rising crime rates, and homelessness issues. The city’s retailers are also pulling out due to crime and low foot traffic. These factors, combined with London’s advantages, are driving tech executives to choose the UK capital as their new home.

Mortgage Time bomb £1.4bn

London homeowners are facing a concerning mortgage “ticking time bomb” as they are forced to replace cheap fixed-rate deals with more expensive loans, warns analysis by the Resolution Foundation think-tank. The Bank of England’s interest rate hikes since December 2021, rising from 0.1% to 4.5%, will result in significant repayment increases for thousands of London families. The report estimates that over the next year, annual mortgage payments made by London homeowners will rise by approximately £900 million and by 2026, they will be £1.4 billion higher. Poorer and younger mortgage holders are expected to feel the biggest squeeze from higher interest rates. Debt charities highlight that rising mortgage payments, coupled with falling living standards due to inflation, are making it increasingly difficult for many families to cope. The number of mortgage repossessions has also seen a significant increase.

Economists have issued a warning that landlords could be compelled to sell over 700,000 properties due to the impact of rising interest rates. If rates were to reach 5%, approximately 735,000 properties would be lost from the rental market as mortgage costs become unaffordable, leading to forced sales. This analysis by Capital Economics highlights the potential consequences of increasing borrowing costs.

Property price indications by Nationwide & Zoopla

According to Nationwide building society, house prices in the UK fell by 0.1% in May compared to April, resulting in a 3.4% decline compared to May 2022. The average price of a UK property now stands at £260,736, remaining 4% below the peak in August. The number of mortgages approved for house purchase in March was approximately 20% below pre-pandemic levels, indicating headwinds for the housing market. Rising investor expectations for future interest rate increases could affect mortgage rates. Despite these challenges, Nationwide’s chief economist remains optimistic, citing solid labor market conditions and healthy nominal income growth as factors that could support a relatively soft landing for the market.

Zoopla’s price index shows a 1.3% decline in house prices over the past six months, with an annual house price inflation of 1.9% in April. The decrease in prices can be attributed to buy-to-let landlords selling their properties. Landlord properties accounted for 11% of sales in the last month as property owners grappled with high mortgage rates and energy bills, leading them to put their homes on the market. While this increase in supply may benefit some buyers, the recent decision by lenders to raise interest rates on fixed-rate mortgages will make it harder for first-time buyers to enter the market and reduce the number of rental properties available.

In London, house prices contracted by 0.2% year on year, with the average price of a home in the capital standing at £523,000. The demand for London property is driven by a backlog of buyers following the Covid-19 pandemic, as well as the scarcity of available rental properties. The impact of rising mortgage rates and living costs, coupled with high inflation, may dampen confidence in the housing market. However, there are signs of buyer demand remaining buoyant, with agreed sales reaching their highest point this year. Landlords selling buy-to-let properties are increasing the supply of homes on the market, and sellers are becoming more realistic about pricing. Regional variations exist, with cities in the Midlands and the north of England experiencing larger annual price jumps compared to London, where prices fell slightly. Zoopla predicts flat prices for the remainder of the year, depending on mortgage rates not increasing significantly.

Britain’s broken housing market as reported in the FT

As reported in the The Financial Times there is a need fix  Britain’s broken housing market and address the underlying problems.

There is a  low numbers of homes per 1,000 people in England compared to other Western European countries. Homes in Britain are among the smallest, but they are also highly expensive. House prices have reached a level that hasn’t been seen since Queen Victoria’s reign, with affordability becoming a major concern. In response to the declining rate of home ownership, the Labour party has put forth plans to stimulate housebuilding through compulsory purchase orders (CPOs) that would require landowners to sell plots to councils at lower prices. However, the article expresses reservations about the effectiveness of CPOs in significantly reducing the housing shortage and raises concerns about the potential precedent for expropriation.

The editorial criticizes both the Conservative government and Labour for failing to address the underlying issues that hinder housebuilding. The planning system in the UK is described as sluggish, with vested local interests often obstructing development. The lack of clarity and discretionary decision-making within the system make it challenging to determine fair prices for forced land purchases. The article suggests that a more streamlined and less discretionary system that designates development zones would be more effective. It also proposes granting councils greater financial incentives to encourage construction by allowing them to retain more property tax revenues.

Another crucial aspect highlighted in the editorial is the need to increase the supply of land. England’s greenbelt, which comprises protected land, covers a larger area than developed land and infrastructure combined. Additionally, height regulations in London restrict both horizontal and vertical expansion of housing.

The editorial argues for addressing inefficiencies in the existing housing stock as well. Stamp duty, a property purchase tax, is identified as a barrier to the market by inflating the cost of home purchases and discouraging downsizing among owners of larger properties. Furthermore, the council tax system in England, based on outdated valuations, disproportionately burdens younger and less affluent individuals. To address these issues, the article proposes replacing these taxes with a simplified 0.5% tax based on current property valuations. This tax could also apply to undeveloped plots with planning permission to incentivize construction.

However, the editorial acknowledges the challenges associated with implementing these measures due to resistance from homeowners and potential voter backlash. Opposition from NIMBYs (Not In My Back Yard), who oppose new developments due to concerns about aesthetics and property values, often hampers progress. Additionally, reforming property taxes may alienate older and wealthier voters who currently benefit from the system. Despite these obstacles, the editorial calls for decisive action to overcome resistance and implement structural reforms to the planning and tax systems.

In conclusion, the FT editorial stresses the urgent need to address Britain’s chronic housing shortage to improve long-term economic growth prospects. It urges the next government to take bold steps to build more homes, increase home ownership, and tackle the underlying issues in the housing market, even if it means confronting resistance and implementing comprehensive reforms.

Government’s levelling up plan and areas to watch for property investment opportunities

The UK Government’s plan to regenerate key areas across the country, known as the levelling-up plan,”Levelling up” is a political policy first articulated in the 2019 Conservative Party manifesto that aims to reduce the imbalances, primarily economic, between areas and social groups across the United Kingdom. This has sparked interest in the effects of regeneration on property prices in London. Research by CBRE shows that regeneration hotspots in London have experienced an average annual price growth of 2.2%, with properties near Canary Wharf seeing an increase in value of £454,000 since 2004. The key components of successful regeneration include access to education facilities, transportation, heritage, and green spaces.

Several exciting regeneration schemes in London are worth considering for future property investment. Wood Wharf in Canary Wharf is a new neighbourhood offering a vibrant community with residential, commercial, and educational spaces, along with arts, music, and sports events. East Wick & Sweetwater in Queen Elizabeth Olympic Park aims to create a mixed-use community with homes, green spaces, and commercial opportunities. North West Quarter in Brent provides affordable homes, retail spaces, and community facilities, while Clarendon in Wood Green offers a mix of residential and commercial spaces with access to amenities like a swimming pool and flexible workspaces.

With the government’s focus on regeneration and the potential impact on property prices, there are promising opportunities for property investment in London. It is important to conduct thorough research and seek advice from trusted professionals before making investment decisions.

Stamp Duty Relief on Non-Residential elements of a property

The stamp duty land tax (SDLT) is a tax imposed on the purchase of residential and commercial properties. Purchasing residential property with certain non-residential elements can potentially qualify for relief from SDLT, resulting in significant savings. However, the HM Revenue and Customs (HMRC) is closely scrutinising and challenging such claims.

Some buyers have been claiming that parts of their property, such as pony paddocks, public rights of way, outbuildings, or a home office, should be considered commercial property rather than residential. This has led to confusion and uncertainty, with reclaim agents suggesting that such claims are possible.

HMRC is actively cracking down on what it deems to be spurious claims, and those who make such claims may face demands for payment of the full amount of stamp duty owed, along with additional penalties. Furthermore, individuals’ broader tax affairs may come under increased scrutiny.

An example of the consequences of a misguided mix-use claim is the case of the founder of Gü puddings, who received a £120,000 bill from HMRC in relation to their £3 million country home.

HMRC’s guidance lacks clarity as it fails to define the term “non-residential,” leaving it as a catch-all category. The tax authority defines residential property as a building suitable for use as a dwelling, along with its garden or grounds. Any part of a purchase that does not fit this definition is automatically classified as non-residential.

Determining whether certain elements of a property qualify for commercial SDLT rates can be complex. For instance, renting paddocks or fields to a local farmer for livestock grazing may potentially qualify, but mere ownership of a property with a few acres of paddocks or redundant farm buildings is unlikely to convince HMRC without evidence of regular commercial exploitation.

The case of Gü puddings, examined in the Upper Tier Tax Tribunal, established that perceived non-residential land or buildings must be commercially exploited to qualify for relief.

Clarity on the tax position of SDLT for mixed property purchases is expected from the government in the near future. A consultation on this matter concluded in 2022, and individuals who have previously made claims for multiple dwellings relief from stamp duty are being contacted by HMRC for a research survey.

In the meantime, individuals purchasing homes who believe they may qualify for relief on stamp duty are advised to seek guidance from specialised and knowledgeable accountants.