Real Estate Realities - Countryside Living

Zoe Dare Hall (ZDH): Hello, and welcome to Real Estate Realities from Barclays Private Bank, the podcast series that looks at prime and super-prime residential property within the evolving market conditions shaped by the COVID-19 pandemic and the global economy.

I'm your host, property journalist Zoe Dare Hall. In this episode, I'm expecting some great insight from my guests, as we discuss the UK prime countryside markets and whether the pandemic has really pushed city dwellers to take up the good life.

So, first of all, let's say hello to our guests who are all very well-placed to give us some answers. First, let me welcome Lucian Cook, Head of Residential Research at Savills, and from Knight Frank we have Ed Rook, Partner and Head of Country Department.

Joining us from Barclays Private Bank is Syed Raza, MD and Head of Banking and Credit.

So welcome to you all. I'm sure this is going to be a fairly lively discussion, as never have prime rural markets been in such hot demand.

Obviously it's something that's born from our collective desire for more space during lockdown, which won't come as a shock to anyone who's been working from home and homeschooling for the past year.

So let's just start with a bit of context. A few months back the news headlines were talking about London's historic population drop, the first in more than 30 years.

That was backed up by a London Assembly survey, which reported that about 15% of Londoners were planning on leaving the city as a direct result of the pandemic and they wanted more inside space, bigger gardens, more parks – that's across both the mainstream and prime residential markets.

So we've all heard about this much-reported escape to the country, but have Londoners actually been following through with it? Let me start with you, Lucian Cook, Head of Residential Research at Savills.

Lucian, I know the market as a whole has seen pretty remarkable levels of activity over the past 12 months. How much of that are you seeing in prime locations outside of London?

Lucian Cook (LC): Last time we spoke was back in August of last year. At that point, we just started to see the resurgence in transactional activity in the market above a million pounds.

I suppose what's continued to surprise us is the extent to which we've seen that level of activity continue. Essentially, since about June of last year, or the second half of last year onwards, we've seen transaction levels in the market above a million, month on month, at 60% to 90% above normal market conditions.

In April, they hit their highest ever level that we've seen in terms of total number of a million-pound agreed sales. At that point for the first time, they were more than double the levels you would have normally expected for that month.

I think that was partly driven by the extension of the stamp duty holiday, giving people another opportunity to cash in on that saving.

It looks like in May those strong activity levels have continued, despite the fact that for a lot of the buyers buying at that point, their expectation of catching the full extent of that stamp duty holiday is going to be somewhat tempered.

Interestingly, just in terms of where it's been, we talk a lot about the move to the country and I think the heat of the activity is probably in two types of market.

It’s probably been in the lifestyle relocation markets, and there the two strongest markets for transactional activity above a million have been Cornwall and Gloucestershire, focussing in on the Cotswolds.

They've also been in the commuter zone – so the heart of the commuter zone – and there the two most popular counties from our records have been Hampshire and Kent.

ZDH: Yeah, it's interesting, as we were talking about all these lifestyle demands last summer, just when they were emerging as trends, and now it looks as though many of them are here to stay. So let me go to Ed Rook now. Ed, in your role as Partner and Head of Country Department at Knight Frank, what are you seeing in terms of the most sought-after prime locations among their city-to-country buyer profile?

Ed Rook (ED): In their pursuit of space and greenery, we're seeing a move to smaller cities and towns, market towns, and the surrounding villages.

Examples are Tunbridge Wells, Guildford, Sevenoaks, Henley, Beaconsfield, Haslemere, and the surrounding villages – there are too many to mention. But a really good example is between Guildford and Haslemere, a village called Chiddingfold, it's picturesque, there's a village community, lots of amenities and as a result high demand. An example of this is we put a house on the market at £3.5 million and had 25 viewings within a two-week period.

So we've definitely seen an increase in the viewing numbers in the prime market. In fact, the numbers are up 34% on the five-year average. What I would also like to say is that it's having a positive effect on these communities.

As more people are spending more of their time and money locally. This will definitely enhance the communities, whether it's the cricket, tennis or golf club or new businesses being set up, it will all help to make these communities thrive.

ZDH: Yeah, that's certainly a very positive consequence of this escape to the countryside, that it gives such a boost to local economies. Syed Raza, does what our other guests say strike a chord with what your clients have been doing or planning over the last 12 months?

Syed Raza (SR): I do agree and I believe we have definitely seen a change in client behaviour and needs. In my mind, there are four distinct buyer groups that have emerged during lockdown.

The first are capital up-sizers who want to trade up for more space, but are keen to return accessibility to London with a direct journey time of, say, less than an hour.

Prime markets such as Chiswick, Wandsworth and Wimbledon, for example, have done really well. And slightly further afield places like Little Chalfont, Sunningdale, Henley-on-Thames have benefited too. The second group are house swappers. These are a bit like me, predominantly live in London but spent their weekend in a smaller country property.

Lockdown has certainly sparked a trend toward the countryside and the coast. So this group has consciously made the decision to downsize their London footprint and do a swap for a larger country house as their primary residence and make a wholesale commitment to a lifestyle change.

Then there is the third group, what I would call the extended commuters, who perhaps are anticipating that the new working norm will mean that they're in the office for up to three days, two to three days, otherwise they will be working from home.

Consequently, they're happy to consider a longer commute, and so are looking more widely and strike a better value on offer where you can pick up a nice detached house with space for half a million plus.

That is at the expense of a longer commute time into London, but bearable if you're only anticipating working for two to three days in London. Viewings in this sector, particularly in the one million price bracket with a travel distance of 60 to 90 minutes have increased sharply since lockdown.

Then finally we come to the last group, the super prime London buyers. Their buying decisions are very much discretionary at this end of the market.

So this end of the market has seen less activity compared to the domestic prime markets. Obviously the lack of international travel doesn't help international buyers coming into these particular locations.

However, this is where the pent-up demand is and I expect when international travel resume that activity levels will increase rapidly in this sector.

ZDH: Yes, thanks Syed. It's really interesting that you identify such distinct buyer profiles and they all make sense. Lucian Cook, I'll come back to you now because I want to ask you about the towns and small cities markets.

You're talking to us today from Winchester, which I imagine is seeing its fair share of upsizers from London. Where else is hot right now in terms of prime town markets?

LC: I think that's interesting. If you look at what's happened over the entire period, since we came out of the first lockdown, there's no doubt that the strongest market – the absolute strongest market – has been the prime country house market, probably above £2 million.

That's seen the strongest price growth by reference certainly to our indices here at Savills, showing 8.8% year on year, highest price growth in the year to March.

But what's been interesting of late is there has been a bit of a shift back to some of the prime urban locations in a number of the places that Ed's touched on.

So, what we would refer to as the ‘uber towns’ – good commutability to London generally, good schools, good quality housing stock. And I know the high street's taken a bit of a battering over this period, but town’s that also have a reasonably good quality set of amenities within the high street.

We talked a little about Winchester, which I see on a day-to-day basis. It's always been a market where Londoners have moved to in their search for more space, probably in a ‘different life’ space. And certainly we're continuing to see that.

I think beyond that, it's really interesting. I did something with our team in our Bristol office the other day, and there they were saying that some of the villages in what I would refer to as the Bristol ‘cocktail belt’ has seen incredibly strong demand – your Chew Magnas and your Barrow Gurneys.

But they were also saying there's a bit of a shift back towards Clifton. And I suppose Clifton will really tick the boxes for a lot of people looking to relocate for all of the reasons that we've mentioned previously.

It has very strong café culture, a very good set of amenities. And I think where people are making the wholesale relocation, it's going to be markets like that that are probably going to do very well in the next phase of the housing market cycle.

ZDH: There's some great West Country place names there. Actually I was in Chew Magna recently and the Chew Valley and it's so beautiful and it feels like that's always kind of flown under the radar a bit compared with the Cotswolds.

But judging by how busy buying agents now, maybe that's not the case anymore. And so we've only briefly touched on prices so far. Ed Rook, let's go back to this tight supply and demand market. What can you tell us about the effects of all this competitive viewing on prices? Are you seeing a sustained increase?

ER: Yes, it's pure economics, huge demand and short supply, especially in the best villages – the lack of supply is the problem. There's not an endless supply of manor houses, rectories, farmhouses, but also I would say two things.

One is that those with lovely houses who can't go abroad, they want to continue to enjoy them, so they're not about to sell.

And we've got to remember that there's another group of people, a lot of people have been locked down. They've been home-schooling, they've been working from home. And so the market's been delayed as it just hasn't been a practical time for vendors to think about selling.

 As a result, we've seen prime regional prices go up by 6.7% in Q1 and in the £5 million plus country house market up 7.3% in the same period.

ZDH: That's impressive price growth. The question is whether it's sustainable, I suppose, and whether the demand will continue to be there for homeowners who have been hesitating about selling during the pandemic so far.

We've spoken in other episodes about the long-term impact of inflation and currency rates and of course how the lack of international buyers has been influencing the UK domestic property market. Syed Raza, what's the outlook now for currency play in what's turning out to be a very active prime property market?

SR: Zoe, let me take that question in two parts. Let me first of all cover inflation, then I will return to the currency dimension. So, putting aside the sharp rise in inflation during April, inflation is still currently below the Bank of England's 2% target.

Now let's imagine that we hit the 2% towards the end of the year. Will that take the sparkle off the real estate asset class? In my mind, no. What's important is what's happening on a real-term basis.

So, putting aside prime central London for one moment where price movement has been lacklustre, outer prime London homes, regional prime homes, prime coastal, and £2 million prime country homes are seeing price movements from anything from 2.5% to close to 9%.

Therefore, on a real-term basis, investors in real estate in these locations are seeing real capital growth. So with interest rates being at an all-time low and low for longer, inflation at 2%, investors should be able to achieve real capital growth today, as well as over the longer term.

Now, let's revert back to the currency aspect of your question. It's certainly possible for international investors to get a relatively good deal by putting their money into prime UK property and prime central London.

Let me explain why I believe that's the case. Prime central London offers exceptional buying opportunity with prices in real terms being lowest in almost 13 years since the peak in 2014. Financing costs, as we discussed on this podcast, are likely to be lower for longer and the pound still trading relatively low if you look at it from a long-term sterling dollar rate over the last 40 years.

Therefore, for dollar and dollar-pegged currency buyers, the UK prime market offers overseas buyers one of the best buying opportunities in decades. There is a direct correlation between low in GBP/USD rate and strong price rallies in prime central London for instance.

So I'm convinced that when international travel resumes, we will see the realisation of pent-up demand taking advantage of the buying opportunity that exists in prime central London and recovery of prime central London prices.

ZDH: Obviously, it's very difficult to predict exactly what's going to happen with the economy coming out of a global pandemic. But it sounds like prime and super prime buyers aren't going to be put off by a 2% rise or by increasing prices when their priority is all about lifestyle.

Syed Raza, I'd love to hear about your observations of living outside London and working in the city. How have you found the lockdown experience of having a home in the countryside and not commuting? Has it changed the way you think about your work life balance?

SR: Zoe, both my wife and I are great lovers of the country. We are blessed with so many great places here in the UK – the Dales in Yorkshire, Lake District,  the highlands in Scotland, and Wales is just beautiful as is the South West coastline.

When our family was young, we decided to move from London into the countryside of Hertfordshire for a change of lifestyle and thinking ahead about the private education of our kids. I love my life in the country with horses, hens and dogs.

Although I might not be so positive in the winter having to clean my retrievers after they have enjoyed themselves in the mud baths that develop in the fields, for instance.

Pre-COVID, I run a tight morning schedule of walking the dogs, dropping the kids to their schools, rushing to the train station and trying to get into Canary Wharf. If the trains were running on schedule, the journey was bearable, and when they weren't, then the stress kicked in.

During COVID and working from home, I don't think I've missed that stress. Albeit I did live in denial for a good few months where I thought we'd be going back into the office, perhaps in May, then July of last year.

It wasn't until September I reconciled we would not be returning in 2020. And I went into the train station to cancel my season ticket for the train. Overall, I think the biggest technological experiment we have all been through has been successful.

The stresses of yesterday have been replaced with stresses like work-life balance. I'm sure many of us are working longer than we were when we were in the office. The thought of catching a train created a natural cut-off point to go home.

ZDH: Well yes I totally agree. I mean, In lockdown people have really found they miss that sense of demarcation between work and home that the commute brings.

And I was thinking too about the very seasonal appeal of country living, you know, this time of year you have the glorious greenery, the warm sun, the long light evenings, and it makes it all the more appealing after what’s felt like a never ending winter lockdown.

Ed Rook, is now, summertime, a good time to consider buying and selling?

ED: In short, yes. Season is relevant. But I would say less so in the last couple of years as there's no exodus abroad on summer holidays. This year, we'll definitely see an extended selling season as a result of that.

But also, there's no doubt – country houses look their best at this time of year. It's definitely more seductive, the sun shining, gardens in bloom, the inviting swimming pool…buyers find it an irresistible environment to live and bring up their children.

I think there's been no better opportunity of selling a country house in the last decade as there is now. We've seen our private office have many of its clients looking for second and third homes. We've seen a real shift where people have had their main residence in London or in an urban environment wanting their bigger house in the country and the smaller property in London.

The emphasis has been spending more time in the country. So I think with demand so high, now is definitely a good time to sell.

Also, we've seen a lot of people using their secondary accommodation and ancillary accommodation at their properties for revenue opportunities, which can often offset the running costs.

And there's been such strong demand from people wanting to spend time in the country that they're very happy to rent and some of the rents are extraordinary. And if you have your staff running the property, your gardeners and all the maintenance costs can be set against all the revenue that come in from the cottage lets. So it can be a really good way of running your property.

ZDH: Yes. It's definitely a time for homeowners in the country to capitalise on that demand while foreign travel's still off the agenda for most of us.

There's a lot to think about then if you are planning a move to the country, especially for people accustomed to, say, a central London penthouse, where you may just be focussed on the views from the roof terrace and how fast the lift is.

But let's get back to the lifestyle drivers. Lucian Cook, what else beyond schools, transport and good access to London are people including in their prime countryside searches? And where else might they find that?

LC: Yes, I think you make a really good point. The market generally has been dictated by a lot of those lifestyle drivers, and it's been that really which has been the main driver, I would say, of demand over the period of the past 12 months.

I think the stamp duty holiday has certainly added degree of urgency to that, but it has been that lifestyle offering which has been important. Of course, things like schools are always important in a property search for those people looking for more space, particularly with a younger family.

And I think that's why we do get some of these very strong prime urban markets generally where you get that combination of accessibility to London and indeed schools.

I'd say over the recent past, accessibility to London has probably fallen down the criteria a little bit. I think it will come right back up again as we start to see people getting back into the office more regularly. And then I think things like the ease and the cost of a commute are going to, again, begin to filter into people's thinking.

But generally, particularly when it's looking at country property, it has been a lot about the lifestyle offering. Quite a bit, surprisingly, I suppose about what the outside space offers – is there decent access to the countryside?

But we shouldn't forget, of course, that some of these drivers have been about the multi-use of the family home. It's not just somewhere to live, it's also being somewhere to work. And therefore, things like broadband connectivity are an absolute must.

Questions are being asked far more often of our agents around the speed and reliability of broadband. And indeed, a separate and defined space to work from home I think is probably the other one that has really risen up the agenda.

And of course, those two things are going to continue to be important on the basis that people, whilst they're going to gradually go back into the office, they're perhaps going to be doing so a bit less regularly, and they're likely to be working from home that much more often.

ZDH: Thank you, Lucian. I'm getting the sense that this having it all attitude, being able to combine the urban luxuries and the more relaxed pace of country life, is what people are really after, people who have the means.

So those old compromises of work versus lifestyle that we made pre-pandemic seem less relevant now.

Syed Raza, in your role at Barclays Private Bank, you must be seeing the acquisition of multiple properties having an impact on lending. Are high and ultra-high net worth clients borrowing more to achieve these new lifestyle goals?

SR: That's right, Zoe. We're accustomed to realistic financing here in Barclays Private Bank that looks to fund our clients’ ambitions. Interest rates are at an all-time low and any upward movement in interest rates seem minimal if you examine the implied curve.

So at the moment, it does seem the future's looking at a rate scenario of continued low for longer. So it can make more sense to buy and borrow rather than rent.

It's also fair to say we're seeing an increase in the popularity of longer-term fixed rates, say five years. Clients trading up and needing to borrow more for their ambitions are looking for that assurance by shifting to longer-term fixed rates.

So they have peace of mind in case wild movements in rates occur in an unpredictable environment to have predictability in their cash flows.

ZDH: Yes, and I suppose after this year, people are pretty highly motivated to change their circumstances. It feels like home is one thing we can be relatively in control of. Ed Rook, do you get the sense that this shift in mindset and priorities is a permanent one?

ER: Absolutely. This is more than a COVID-based fad. It's a more balanced lifestyle that's sustainable. I believe there was due to be a shift to country living, but I didn't expect it to be the pandemic that was the catalyst.

But what I would say is that the younger generations still want to be in London, though. It's the families that want to be in the country, with more time to enjoy the family in a rural lifestyle. These things tend to be cyclical, though.

And whenever towns are at a low ebb, they reinvent themselves, and that's exactly what London will do.

ZDH: Yes, well it's certainly great to see London starting to come back to life now with the reopening of hospitality. And of course, it will be interesting to see what happens when international travel finally resumes and those international buyers are back in London and beyond.

So a question for Lucian Cook: until that happens, do you think the prime commuter zone will continue to give prime London a run for its money?

LC: Yes, I think it's quite interesting generally – if you look at the relationship between prices in the prime London markets and the country, then London really pulled away from the country to an extent that we’d never really seen before over a 15-year period that started in around 2000.

And what that tends to mean is that despite the fact that the country and the commuter zone has out-performed London of late, it's only closed that gap to a certain degree.

And actually, if you look at where the long-term balance might sit, then you would say that we are amid something of a rebalancing. The other thing I would say in the short-term is, as Ed has pointed out, the level of buying activity that we've seen has meant that there are real shortages in the market.

And I think that means there's quite a lot of unsatisfied demand still in the market. And that means that the market's going to remain pretty robust through the remainder of 2021.

LC: That said, I do think central London particularly looks like it's good value. Clearly, it's been held back by the lack of international travel.

The price adjustments that we've seen in that market have more than absorbed the increases in stamp duty, even including the additional 2% stamp duty surcharge. So I think you are going to see over the period of the next 12 to 18 months quite a resurgence within that central London market.

And we're already beginning to see that, just in terms of the levels of activity that we're seeing in central London. Just in April, for example, £5 million-plus sales across the London market were 60% above where we would normally expect them to be.

So clearly there are some changes going on. And I think this is the interesting thing about this market is that it's going to evolve. And I think you will see London come back into focus. There will be some rebalancing, but given the level of unmet demand that we've got in the country at the moment, that's going to take quite a bit of time.

ZDH: So in other words, despite the far bleaker outlook this time last year, UK prime markets are now giving us some calls for optimism.

So we've talked a lot about where beyond London investors are going to either relocate, or they're looking to invest in a co-primary or a second or a third property. So to close this episode, I'd like to ask each of you for your top location. 

Ed Rook, you live in a country property in the Home Counties now, but if you were to buy somewhere else, where would you choose?

ER: Well, I would be greedy and I would buy two. I would purchase a small place in central London. I still believe in London and it's a future-proof investment for my children.

But also I would buy something different to my current property, something on the coast with a view. We've got a house in Croyde coming to the market at £10 million, which I think would work quite well. It would allow me to indulge in my passion for playing golf and mucking about in the sea.

ZDH: Yeah, I'm definitely with you on the water views and the water lifestyle, but obviously, there's a definite wisdom in not cutting your ties with London too. I mean, it's the best of both worlds strategy that seems to be gaining in popularity now.

So Lucian Cook, what's on your personal property wishlist?

LC: So I currently live near Winchester and as a family, we're pretty wedded to that. So if I'm going to look at the villages that are in decent striking distance to the station, it's going to be the likes of Sparsholt.

It's going to be the likes of Hursley, it might be Twyford, it might be a village like Easton. All of which are in pretty close proximity and make it very easy to get into the city.

ZDH: Sounds good. And Syed Raza, if you were buying now, where would you go?

SR: Let me get my crystal ball out. Whilst I envisage positive cumulative growth on both absolute and real-term basis in prime property markets that have benefited significantly under lockdown, all the areas we have discussed in this podcast like outer prime London, the commuter belt, and wider-south areas, I am nonetheless thinking that will see a more pronounced recovery in prime central London, as the market looks good value both historically and in international contexts. So therefore, I would be voting with my money in prime central London.

ZDH: Well, there you have it from the experts. It will be down to our listeners to decide whether the fresh air and the charms of country life are ultimately stronger than the magnetic pull of London, or whether you’ll join those who are choosing to have both.

I'd like to thank all our guests for their brilliant insights and a great discussion. Thank you to Lucian Cook, Head of Residential Research at Savills. Thank you, too, to Ed Rook, Partner and Head of Country Department at Knight Frank. And finally, my thanks to Syed Raza, MD and Head of Banking and Credit at Barclays Private Bank.

That's all for this episode of Real Estate Realities from Barclays Private Bank. You can find this whole podcast series on all the usual channels, and thank you for listening.