Market turmoil dashes hopes of recovery in UK housing sector
The latest round of bank failures and forced mergers bodes ill for Britain's property market as deep staff cuts get under way as a result of the shake-up in the financial market, warn commentators.
Last week's collapse of Lehman Brothers meant 5,000 London staff lost their jobs overnight, while the takeover of HBOS by Lloyds TSB will mean 40,000 staff cuts, analysts have said - though management denies the consequences will be so severe.
Hedge fund management companies are meanwhile struggling, and institutions like Bradford & Bingley are vulnerable, so more jobs may go in coming weeks and consultancy firm Hay Group forecasts that 110,000 finance jobs could be lost nationwide over the next 12 months.
Liam Bailey, head of residential research at property consultancy Knight Frank, said the turmoil and job losses in the financial services sector had ended hopes of recovery in the residential sales market.
'The market was still struggling in August and early September but there was some sense of slowly rising optimism. Now this has been cancelled by these events,' he said.
Lucian Cook, residential research director at property consultancy Savills, said the financial market job losses would push down sales volumes and prices in London's residential property market, particularly for homes in the #1 million (HK$14.34 million) to #2 million bracket such as smart flats, which are favoured by bankers and stockbrokers.
'It will accelerate the fall in prices,' he said. 'We had forecast job losses and although this has come at a bit of a rush it is still consistent with a 25 per cent fall in prices peak to trough that we are expecting.'
London's rental market is also suffering from the fallout in the financial sector.
According to Cluttons estate agency, former employees of Lehman Brothers who lived in Belgravia and Wapping quit their rental properties immediately following the collapse of their employer at a time when new tenant demand is contracting.
'Fewer people are coming to the City of London for jobs so this has tempered rental growth prospects and in some cases there are rental falls,' said Mr Cook. The supply and demand imbalance was exacerbated by many homeowners placing properties they could not sell onto the rental market, giving tenants more choice, he added.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said developers in and around the City of London and Canary Wharf, who would have hoped to sell homes to finance workers in better times, would mothball projects or accept lower prices. The impact of finance job losses would be felt across Britain, he added.
'The Hays' numbers seems high, but the impact is likely to be fairly widespread,' he said. 'The economic impact will be fairly broadly based impacting on the mainstream market.'
In the Yorkshire town of Halifax, where the Halifax Bank arm of HBOS is headquartered, staff fear for their jobs as Lloyds seeks to end duplication of roles.
Robert Hadfield, managing director of London-based investment property management company, Pineflat, said investors might need to reconsider their strategy.
'I certainly wouldn't put new money into residential investment at the moment,' he said.
'Existing investors need to look at their yields and act accordingly. For investors who are not covering their finance costs it is probably worth selling even at a loss.'