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Room at the top

I had a meeting recently with a property relocation consultant whose particular field was finding property for directors, presidents and vice-presidents of US investment banks and finance houses. These are people who, after relocation to the UK, expect to be housed in some of the finest properties in the most prestigious locations throughout London and the South-east. They provide a prop to a sector of the housing market that is significant in value, if small in volume.

But this time, my meeting was not a particularly happy one. Usually, I get a good dose of positive housing market perspective, how the top end of the market remains resilient to any correction, that quality properties will always be in demand and that our American friends can always be relied upon to seek out prime property and then pay for it or at least have their generous employers do it for them.

Well not, it would seem, anymore. According to my consultant, the impact of September 11, plus the ongoing and seemingly relentless collapse of stockmarket confidence have meant that many of the US investment banks have decided to call it a day and recall large numbers of their high-flying executives back to the US.

My consultant then cited to me the appreciable slowdown in activity that had happened at the top end of the London and South-east housing market over August and September and went on to warn about the poor bonus prospects of those left in the City next year and how this would further damage this sector of the housing market.

All pretty gloomy stuff, but was this prognosis fair? This dose of pessimism got me thinking about what were the positive sides in all this.

After all, could a downturn at this time of year not just be put down to a fairly traditional summer lull or at least a not unreasonable slowing down of market activity?

Furthermore, a small correction at the top end of the market may be overdue. We are repeatedly being told that double-digit annual house price inflation is becoming unsustainable. Let us not forget that a 10 per cent a year increase in a prime London property of, say, £900,000 is far more significant in monetary terms than a similar percentage rise at the lower end of the market. There comes a limit as to how long the market can sustain such strong annual house price inflation, resulting in this case, in a property increasing in value by £90,000 a year.

And there is no escaping the fundamental fact that underlying the whole housing market are some of the most competitive mortgage rates seen in the UK for the last four decades. There are now numerous two-year fixed-rate mortgages below 4 per cent, with two-year discount rates available around 3.75 per cent and five-year rates at around 4.75 per cent.

With money available at these sorts of interest rates, the whole spectrum of the housing market remains supported.

There seems little pressure for any rise in interest rates from the current 4 per cent and, with inflation contained, further reductions may be feasible, maintaining the affordability of mortgage finance.

Perhaps one of the most significant factors affecting buyers at the top end of the market has been investor and housebuyer confidence in underlying financial markets – the feelgood factor.

Here we have a contradiction, as many homeowners have benefited from the recent rise in their property while smarting as the value of their share portfolio has tumbled by up to 30 per cent.

The temptation to put private wealth into bricks and mortar is strong but now may not be a good time to cash in an undervalued share portfolio to put into property.

The recent rises in both the US and UK stockmarkets in the last two weeks must be welcomed. Maybe the 400-point rise in the FTSE 100 and 1,000-point rise in the Dow may signal the beginnings of a US-led recovery, however fragile.

If this recovery continues then maybe it will signal a return of investor confidence, which will lead to this particular sector of the housing market being strengthened.

While it may be premature for me to suggest to my relocation consultant that the US investment houses will be returning to London in significant numbers in the short term, there are a wealth of positive factors out there helping to sustain this small but significant sector of the housing market.

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