London flat owners trapped on first rung of property ladder

London flat owners trapped on first rung of property ladder

The high cost of flats and other starter homes in London and south-east England is not the only reason why record numbers of young people are leaving the capital, according to skip hire broker Proskips.

Evidence gathered before Britain voted to leave the European Union shows more than 280,000 people decided to move away from the capital in 2015, an increase of 3% compared with 2014.

Many commentators point to the chief reason for this exodus, led by people in their 20s and 30s, is rising property prices. They say that the average cost of buying a flat in London stood at £476,450 last year.

This compares to an average price tag of £200,251 for a home in the whole of the UK, according to Nationwide Building Society’s latest figures.

Property in London is significantly more expensive than other areas of the UK, due in no small part to the capital suffering from a shortage of homes for its estimated 8.6 million residents.

However, the price gap is being exacerbated by the growing trend of carrying out costly improvements to existing homes, increasing their value further.

Research conducted by Lloyds Bank reveals that of the 2 million UK owner-occupiers who carry out home improvements, people in south-east England – which includes London – are more likely to undertake large-scale projects than in any other area.

The survey, which was published in 2014, revealed 34% of homeowners in London and the south-east have made significant alterations to their current property, and a further 20% planned to do so by the end of 2015.

quotation-mark_318-48610Anecdotal evidence still supports these findings, says Wimbledon estate agent Robert Holmes. It is difficult to walk down any residential street in London and no see at least one house with scaffolding or a builder’s skip outside.

But will Brexit put the brakes on large-scale improvement work taking place at London’s housing stock that was built in the Victorian and Edwardian eras?

Permitted development rights, first introduced in 2013 as a temporary measure, allow householders to carry out certain types of improvements – including extensions – to their homes without having to apply for planning permission.

quotation-mark_318-48610This has certainly encouraged homeowners to improve their properties, says Newington Green estate agent M&M Property. But the major driving force has been that the cost of this work can be recouped by a significant increase in the property’s value.

Building society Nationwide calculates that an extra bathroom could add 4.9% to the value of a home, a loft conversion increases a property’s worth by about 22% and adding a decent-sized extra bedroom has the potential to boost the value of a house by 11%.

In London – where the average price of a terrace house is now £615,721, according to Rightmove – this means an extra bathroom could add £29,554 to the value of a previously modest house. And a loft conversion has the potential to add over £135,000 to a similar property’s value.

But if, as some are suggesting, Brexit will see property values in London fall by up to 25%, the cost of loft conversions, rear extensions and turning garages into additional living space will become higher than any rise in the home’s value.

Such a consequence of Brexit would, therefore, narrow the price gap between starter and second homes, enabling more people in London and south-east England to move up the property ladder and give first-time buyers a wider choice of homes.