It is an issue that must vex even the most modest of supercar purchasers: if you keep your prized Ferrari or McLaren garaged under lock and key, how can anyone be expected to know you own it?
The buyer of Beaumont House, a freshly minted £8.95m luxury home in the wealthy enclave of St George’s Hill in Weybridge, Surrey, need face no such conundrums. Drive into the garage of this six-bedroom house — which also boasts a wine cellar, staff annexe, cinema room and gym — and the car lift will drop you down to a glass-plated “showroom” in the basement. This is conveniently located right next to the property’s vast “party room”, giving a view that will be all but impossible for your guests to ignore.
St George’s Hill, like Mayfair or Monaco, is one of those places where deep pockets and high incomes are the norm. Its tree-lined lanes, monitored round the clock by security guards and within striking distance of the West End, are as appealing to the Russian plutocrat as they are to the London hedge fund manager.
The principle it illustrates is that the wealthy tend to cluster in particular areas and are willing to pay for the privilege, pushing up demand and house prices. Yet this is not just a phenomenon of the super-rich — it is replicated in well-heeled regional markets across the UK.
Using data from Experian and the Office for National Statistics, Savills, the estate agent, has mapped the concentration of high earners across the country, measured by households with annual income of £100,000 or more.
As can be expected, these are also areas with high house prices. Those with the greatest earnings power will typically have bigger stores of wealth to throw at housing and are more likely to pass the income-based affordability tests laid down by mortgage lenders, which have been significantly tightened since the financial crisis.
First-time buyers or second steppers may feel the knock-on effects (see box). For buy-to-let landlords, these high earning hotspots cut both ways. On the one hand, a well-heeled population makes the rents they demand more viable, but buying a property in high-earning areas forces landlords to compete with deep-pocketed owner-occupiers. This can leave the profitability of a mortgage-funded rental investment far tighter than in less expensive areas. Where prices have risen to the limits of affordability, there may also be little to look forward to in capital appreciation.
But for those who can afford to buy and live in them, high-earning hotspots can bring an outsized benefit in housing equity growth in a climate of rising house prices. Lucian Cook, residential research director at Savills, says: “The consistent pull of high earners to certain locations has resulted in significant concentrations of housing equity in established prime markets. As they have climbed the career ladder so their spending power has risen, fuelling higher long term rates of house price growth than elsewhere in the country.”
Where do the highest earners live?
Savills looked at the location of the 1.45m UK households with an income of more than £100,000, or 5.7 per cent of the total. The longstanding “north-south divide” is the most prominent feature of any such analysis — in 2018, 60 per cent of those households were located in London and the Southeast, the hub of the country’s financial services industry as well as a plethora of other high-earning sectors. More than half a million high-earning households are situated in the capital.
Ranking each region and devolved nation by the number of high-earning households, the East of England comes third after London and the Southeast, followed by Scotland, with 86,000 high-earning households or 6 per cent of the total — a result partly explained by the concentration of financial and professional services industries in Edinburgh, not to mention oil wealth in Aberdeen. The Southwest, Northwest and the West and East Midlands follow, with Wales and Northern Ireland at the bottom of the table.
Put another way, one in six London households earns more than £100,000, compared with one in 32 in the Southwest or just one in 87 in Northern Ireland.
Breaking the figures down to local authority level brings out other notable comparisons. The earnings power concentrated in the central London boroughs of Westminster or Kensington & Chelsea is well known. But there are more than double the number of £100,000-plus households in the London borough of Wandsworth, for instance, as there are in the whole of Wales (44,400 versus 19,900).
When it comes to the links between the housing market and income distribution, there is a broad regional correlation between high house prices and high income levels; yet there are also striking disparities here too.
While the local authorities of Camden and Chiltern, Buckinghamshire, both have 30 per cent of households earning over £100,000, the percentage of housing sales over £1m in Camden clocks in at 35 per cent against 11 per cent in Chiltern, illustrating the effect of long-term growth in London house prices compared with other areas.
London is not alone among cities, of course, in being a focal point of high demand. Henry Pryor, a buying agent, says the housing market in thriving urban economies such as Cambridge and Oxford are “totally out of kilter” with what goes on five or 10 miles away. “The market in the city of Cambridge operates in a completely different way from the market in the countryside surrounding it,” he says.
London and the Southeast tend to hog the limelight in discussions about the geography of Britain’s wealth, but each UK region and devolved nation has its top ranking districts. Researchers at estate agent Savills pulled out the postcodes with the highest concentration of households earning more than £100,000.
Ranked top in the Northwest is Wilmslow, part of an area of rural desirability south of Manchester where Premier League footballers and industrialists make their homes. Here, 20 per cent of households bring in more than £100,000 a year and house prices average £437,500.
In Scotland, an Edinburgh district might have been expected to top the postcode ranking but uppermost is Milltimber, where 40 per cent of households exceed the £100,000 income threshold. Victorian villas line the generous streets of this suburb, six miles outside Aberdeen, whose prosperity — and high average house prices of £508,000 — is founded on oil wealth.
The multimillion pound value of homes on the narrow plots of land of Sandbanks, near Poole in Dorset, make it some of the most sought-after coastal property in the UK. Topping the regional ranking for the Southwest (along with Canford Cliffs, part of the same postcode along the coast), 28 per cent of its households surpass the £100,000 earnings threshold, with house prices averaging £792,650.
Wales’s high income hotspot is Cowbridge, a pretty market town in the Vale of Glamorgan, a few miles from Cardiff and close to the beaches of south Wales, where 24 per cent of households earn more than £100,000.
Radlett in Hertfordshire ranks highest in the East of England, with 46 per cent of households in this prosperous London commuter town earning over £100,000 — and house prices averaging £949,300.
Other regional postcodes with the highest income concentration are Esher in the Southeast; Hockley Heath and Tanworth-in-Arden for the West Midlands; Hathersage, Grindleford, Eyam and Curbar in the East Midlands; Dore and Totley in Yorkshire and the Humber; and Ponteland in the Northeast.
In London, 84 per cent of households in Knightsbridge earn more than £100,000 — and the average house price is £2.42m.
Reversal of fortunes
Yet the relationship between high-earning areas and house prices has not remained unchanged over the past decade. The story of the years following the credit crunch and the financial crisis was one of precipitous house price growth for hotspots such as London and the Southeast, including the rapid growth of prices in formerly rundown areas such as Hackney.
Indeed, in local authorities where more than one in five households have a £100,000-plus income, prices are on average 45 per cent above their pre-2008 peak. In council districts where fewer than one in 100 households make £100,000 or more, prices are just 5 per cent above this metric. The message is that the rampant growth in the London market, which drove price rises in the surrounding commuter districts, did not ripple out to the regions and nations in the years after the crisis. Instead, the gap between these zones has widened.
Such patterns are, however, anything but fixed in a historically cyclical market — and the Savills research shows that in the past three years, the pendulum has already started to swing the other way. In the highest-income areas, average prices are 0.9 per cent down on pre-referendum levels and 2.1 per cent down on a year ago. In the less income-rich zones, they have risen by 10.9 per cent since the Brexit vote, and 4 per cent in the past year.
In Wandsworth, for instance, average property prices rose by a staggering 56 per cent after the credit crunch, but have fallen 5.3 per cent since 2016. In Kensington & Chelsea, prices rose 43 per cent in the good years but have fallen by 11 per cent since 2016.
Mr Cook says: “The two key points were the stamp duty tax changes that George Osborne introduced in the 2014 Budget and the decision to leave the EU. It’s the combination of those factors which marked the change in the distribution of price growth, including who has benefited from it — and who’s been at the sharp end of a slowdown in the housing market.”
London’s high-end housing market has borne the brunt of this adjustment in the recent period, while a more positive trend has taken hold in other parts of the country. Mr Pryor recalls last week encountering a mood of deep despondency among agents in Putney, south London. “If you want to buy a £1m house in south London, by and large, the estate agent will send a limousine to collect you. That’s totally different from the market in Manchester and Leeds, where the party is in full swing.”
One consequence of the long period of strong price growth in the capital that followed the financial crisis was that many Londoners, reluctant to miss out on the upside, rejected or delayed the conventional move out to a larger home in the commuter counties or further afield. Mr Cook says the data suggest this has now changed. “The wealth in this group is beginning to be spread slightly more widely,” he says, though still within the prime markets of, say, Surrey, the Cotswolds or Bath.
At St George’s Hill, Simon Ashwell, head of Savills’ Weybridge office, is confident that the post-referendum drop in prices has been steep enough to stimulate a wave of demand among a new set of buyers. After 2018, which he describes as the worst on record for the enclave in terms of the number of transactions, business has picked up and numbers for the first six months of 2019 are likely to surpass last year’s total.
Instead of Russian or Chinese expatriate buyers, however, 100 per cent of the callers to his office are British. “Prices have come down to meet a British budget,” he says. “Houses that were going to launch at £15m or £16m can now be bought for £8m or £9m. Your wealthy buyer says: ‘We can buy for half price’.”
At the lower end of the London prime market, Mr Pryor has worries about the future viability of prices. He describes “road after road” of similar five-bedroom homes costing £2m-£3m, running for many miles along a corridor of wealth through Fulham, Wandsworth, Richmond and beyond, each with its modest garden and identical extension at the back.
“My concern is there’s very little to differentiate them. Who is going to buy them in five years? Are people going to be able to afford to buy there? There may be more pain to come before it gets better.”
Many of those in high-earning areas who bought ahead of steep rises in house prices will have built up a large amount of housing equity, fuelling a move to another area and widening their available options.
But first-time buyers will usually find it harder — if not impossible — to get on the housing ladder in places with a high concentration of top earners. They will require a bigger deposit to get a mortgage, as well as being required by lenders to show they can afford higher monthly repayments.
Robert Gardner, chief economist at lender Nationwide, said this month that the picture for first-time buyers had improved in recent months, with the number of mortgages being taken out by first-time buyers approaching levels last seen before the financial crisis levels.
However, Mr Gardner said this assessment did not apply in London and parts of the south of England, where raising a deposit and servicing high monthly mortgage costs was far harder.
Looking at the income levels of first-time buyers in different places exposes the problem. “In 2018, first-time buyer incomes were in line with or below average incomes in most regions,” he said. “However, in the East, Southeast and London, first-time buyers’ incomes were significantly higher than average incomes in those regions — 60 per cent higher in London — illustrating the extent to which many prospective buyers are priced out of the market in those areas.”
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