You are leaving London because of Brexit. Perhaps your employer needs you to work within EU borders. Perhaps you are returning home after years in the UK capital, no longer feeling quite welcome. Maybe your partner lacks confidence about what their immigration status will be once Britain has left the bloc. Whatever the reason, you are off to a European city. So what should you do with your London property?
Launching our new Brexit Swaps series in which we cover a range of EU locations, FT Residential focuses on switching London for Paris and outlines the numbers that should be factored into the decision whether to sell up or rent out a home in the UK.
Using data from estate agents Savills in London and Leggett Immobilier in Paris, we present five different residential scenarios: a chief executive and his family wondering what to do with their super-prime house in London’s high-end Chelsea; an expat director and their partner moving from an upmarket St John’s Wood apartment just north of central London; a local director and their family with a house in Putney, south London; a local employee and their family in a house in West Norwood, south-east London; and a single young professional considering the options for their one-bedroom flat in outlying Southgate to the north of the city.
So what should homeowners do? Over the medium term, the answer is clear: all but one of the households (the local director and family) would be better off selling their London home and buying one in Paris. In doing so, the other four households would see their net housing wealth grow between 24% (local employee and family) and 44% (chief executive) over five years. This represents financial gains of between £102,000 and £2.8m.
The local director, however, would be ill-advised to buy in Paris — with the caveat that five-year forecasts for the Paris market cover the whole city and are therefore less localised than those for London. Theirs is the only household predicted to lose money by choosing to invest in the French capital — to the tune of £231,108 (-27%). This compares with a 12% (£104,938) loss should they rent out their London home instead of selling.
One reason for this is that the local director’s housing price bracket attracts particularly punitive transaction costs. Another, according to Savills, is that apartment-heavy Paris is short on three-bedroom houses with equivalent values and in similar, non-central locations to those in Putney, south London.
For the other households, becoming a London landlord would incur losses for the local employee (-10%, or £51,708) and single young professional (-11%, or £43,637). Yet the two most senior individuals in the table would see gains — albeit less than if they sold up — even after paying rent on an equivalent Paris property. The chief executive could expect to be 13% (£836,831) better off, the expat director 9% (£105,767 — around the same amount the local director could expect to lose.)
What of the shorter term? Based on current 12-month market forecasts, none of our five households have anything to gain by holding on to their London property for just a year, yet those with the most valuable homes have, in relative terms, the least to lose.
Take the chief executive. With no growth predicted for their expensive London home over the next year, after paying rent in Paris their net housing position would be down 1% (£93,278) in 12 months’ time. Meanwhile, an expat director would be down 2% (£25,837).
More damagingly, a local employee’s net housing position would reduce by 5% (£27,240) and a young professional’s also by 5% (£21,877). Once again, a local director has the most to lose: 6% (£55,331) of their initial housing stake.
Selling up in London and buying a new home in Paris is, though, a different story. For all but one household, the net position after a year is positive. After pocketing the proceeds of a London sale and paying transaction costs on both sides of the Channel, a chief executive’s housing wealth would be up 31% (£2,408,783), an expat director’s up 19% (£268,113), a local employee’s up 15% (£77,172) and a young professional’s up 17% (£69,494).
In contrast, the local director would take a significant hit of -38% (£359,365) over 12 months, once again making them the only household to be better off holding on to their London property, albeit still at a loss.
“In the short term the Paris market is benefiting from the double whammy of London being out of favour due to Brexit and the Macron effect, where our president is keen to attract both investors and entrepreneurs (particularly tech) into Paris,” says Trevor Leggett, chairman of Leggett Immobilier.
“In the longer term . . . low supply in Paris will continue as the Grand Paris project [a government scheme to boost the Greater Paris region] ensures that most construction takes place outside the Périphérique [Paris’s inner ring road].”
We looked at the value of each household’s London home, the rent they might expect to command, and the cost of buying or renting an equivalent property in Paris. Added to the mix are the potential costs of selling in London and buying in Paris, plus the property price growth homeowners in each city could expect over the next year and the next five years.
Given their complexity, taxes — other than transactional ones — are not included, but for London leavers these are obviously a significant factor. Similarly, exchange and mortgage rates are not considered here, but are likely to be part of the decision-making equation for many.
Photographs: Richard Kaminski/Rex/Shutterstock; Alamy