London: the rent is too damn high

It looks like London’s runaway property market is finally having an effect on activity in the capital.

Posh, London-only estate agent Foxtons put out a trading update on Thursday, saying that “transaction levels remain at historically low levels due to strong recent price growth and stamp duty changes.” (The government recently overhauled stamp duty, a tax paid on completion of a sale, to make it more costly for those paying above £1 million.)

Foxtons aren’t the first to point this out — upmarket property consultancy Knight Frank reported a 21% fall in the number of £1 million ($US1.5 million)-plus property deals in the year to April 2015.

But perhaps most interestingly, Foxtons is also seeing a slowdown in the rental sector, as well as home sales.

Foxtons says: “The mix within lettings continued to shift towards renewals with a record number of tenants extending their tenancies, meaning that new let volumes were correspondingly lower than expected.”

In other words, more and more people are staying put rather than moving around.

Foxtons doesn’t give an explanation as to why it thinks this is, but a fair guess is that rising rents are putting people off. The average rent in the capital rose by 11.6% in September compared to the same month a year earlier, hitting a new record of £1,301 ($US2,007) per month on average.

The reason for the crazy rental rise is a pretty simple one — thousands of people are flocking to London but not enough homes are being built, a point Foxtons made in its last update.

Anecdotally, you hear one of two things from pretty much every London renter — they’re either smug they have got a relatively good deal (that would probably still make a Northerner baulk), or enraged because they’re paying through the nose for a place that’s not worth it. It seems likely this could be tied up with why people aren’t moving.

In its third quarter trading update on Thursday Foxtons also said:

  • Turnover was up 8.8% to £43.5 million ($US67.1 million).
  • Residential letting revenue was up 3.3% to £22.6 million ($US34.8 million).
  • Earnings before interest, tax, and deductibles was up 15.5% to £16.4 million ($US25.3 million).

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