Covid clauses and growth of owner-occupiers keep London sales pipeline intact
The inclusion of “Coronavirus Events” in contracts and the decline of investor-landlords has kept the majority of sales transactions intact
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One in five property sales underway in London when the Covid-19 pandemic struck have fallen through, meaning the vast majority of buyers and sellers have held their nerve.
While government restrictions mean that physical viewings are not allowed, Covid-19 clauses are among a number of measures being used to ensure that most transactions are, for now, holding together.
“You’d be surprised by how much activity there still is,” said James Clarke, head of London sales at Knight Frank, who confirmed that 80% of deals were still set to happen. “Buyers and sellers can see what is going on in the world and are most are prepared to wait it out. Some sales are falling through but you’d expect that in a normal market.”
Despite this relative resilience, government restrictions following the Covid-19 pandemic have severely limited the number of new deals starting. This will be reflected in transaction figures that are likely to be far weaker than normal in June and July, by which time some Coronavirus measures may have been relaxed.
So-called “Coronavirus Event” clauses have been written into contracts to protect buyers and sellers from claims that may arise due to Covid-19-induced delays. Such clauses typically cover anyone involved in the buying process having to self-isolate, disruption to Land Registry searches and removals, as well as the ability to transfer money or sign documents.
Furthermore, completion dates are typically left flexible and can be reviewed on a rolling basis and the use of long-stop completion dates means that after an agreed point in the future either side can walk away without penalty.
A number of simultaneous exchanges and completions are also taking place, which minimise the risk of anything untoward taking place between these two stages, which are usually several weeks apart. Furthermore, some buyers are paying reduced exchange deposits of 5-7% compared to the usual 10% to minimise the financial risk.
The recent history of the market has also played a part in keeping more deals together, according to Christian Lock-Necrews, the head of Knight Frank’s Marylebone office. First, pent-up demand that built in recent years due to tax changes and Brexit uncertainty, is being released. Second, tax changes have also led to a declining number of investor-landlords, which explains why more deals are holding together.
The percentage of new prospective buyers that were investor-landlords in January 2020 in London was 4.4%, data based on a three-month rolling average shows. This compares to 8% in the same month in 2019 and 15% in the first month of 2015, as the chart below shows.
“We’ve seen more families looking for homes and fewer investors,” says Christian. “Combine that with the pent-up demand that has formed and that explains why a relatively large part of our pipeline is holding together.”
Although some buyers are requesting price reductions to reflect the added uncertainty created by the Covid-19 pandemic, it is happening in an ad hoc manner and it is not yet possible to evaluate any wider impact on prices.
“One buyer asked for a reduction to cover their rent between now and whenever the completion date will be,” said James Gubbins from Knight Frank’s Mayfair office. “We worked out the buyers’ daily rent and suggested that instead of the reduction the vendor would cover their rent, showing they were prepared to do everything they could to get the deal completed as soon as possible.”