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Lehman Brothers collapse: five years on

Monday 16th September 2013

In the wake of the five year anniversary of the Lehman Brothers collapse, property market analysis conducted by independent property intelligence company Dataloft in association with Prime Central London estate agency, W.A.Ellis, has shown that in the 12 months following the fall of Lehman Brothers, sales transactions in England and Wales fell by 33%, and gross lending by 48%. Meanwhile, average prices in central London fell by 17% in 9 months - bottoming out at £890.00 per square foot.

Other key data from the research found that transaction numbers in Prime Central London (PCL) peaked in 2006, but in the 12 months following the collapse of Northern Rock, fell back by 43%. However, the PCL market recovered quickly, with sales volumes between September 2008 and 2009 5% higher than the same period a year earlier.

But the full recovery in the PCL markets only began to take root in 2009 at a pace that outperformed the wider London and UK markets - the average sales price per square foot is now 37.5% higher than at the time of the Lehman's collapse

In Q2 2007, cash buyers in Kensington and Chelsea accounted for just 30% of purchasers, in contrast to Q2 2013 when the figure rose to 52%.

Richard Barber, Partner and Head of sales at W.A.Ellis, comments: “While it appeared as though the market was going into freefall at the end of 2008 following the Lehman's collapse, the impact of the weak pound against the euro and the dollar, coupled with a 17% fall in PCL prices, helped to fuel the recovery. Suddenly, London property was an incredibly attractive investment to the overseas buyer, and demand meant that prices recovered in a short period. Low interest rates from March 2010, also made a big difference to the health of the London property market proving its resilience in the face of crisis.”

The research also looked at the impact of the stamp duty land (SDLT) increase, and found that interestingly the impact of increased SDLT on higher value properties has had almost as great an impact on the PCL market as the fall of Lehman Brothers. In the 12 months following the increase to 7% for sales over £2m, sales of properties between £2m and £3m fell by 19% compared to the previous 12 months, while transactions between £1m and £2m rose by 6.4%.

Mr Barber adds: "We have seen a significant impact due to the SDLT increase with strong price gains between £1m and £2m, but a more cautious attitude at the upper end of the market particularly within the larger London house market. We have seen evidence of wealth dispersement with larger houses being sold to provide purchasing power for children and grandchildren as fears of Mansion Tax and Capital Gains Tax on principle homes endure.”

Rental market

Looking at the Prime London lettings market, there are also noticeable differences between now and five years ago.

Americans with significant corporate budgets accounted for 75% of the market pre Lehman's collapse - in 2013, they represent approx 40%

Today's relocation packages have also seen corporate lets move further afield to areas such as Wandsworth and Fulham

In 2013, average rents are 20% higher than they were at the bottom of the market in 2009 due to the growth in the rental sector

Lucy Morton, senior partner and head of lettings at W.A.Ellis, comments: "Although corporate lets suffered as a result of the Lehman's collapse, the Prime London rental sector has grown for several reasons; demand from would-be first time buyers struggling to get finance to purchase, the older generation selling up to release equity and renting, as well as an upward demand from wealthy international students. As such, prices have risen according to demand, although they are slightly lower (0.6%) than at their peak in 2007.

"The real shift in corporate lets since the collapse of Lehman's (and Northern Rock), is the way that the tenancies are being structured, because landlords became nervous about letting to banks and financial firms. Rather than the agreement being in a company name as a "corporate let", employers are now providing individual housing packages so that the contract is with the employee instead. This also benefits the employers as it relieves them of the tenancy liabilities."

 

              

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