Bonus payouts in the City fell by 8 per cent for the 2010/11 financial year, according to the Centre for Economics and Business Research, yet basic salaries have increased by as much as 7 per cent in the first quarter of 2011. The loss of one is being cancelled out by the increase in the other.
At a time when many have to accept pay cuts if they want to hang onto their jobs, this news is bound to ruffle feathers. Not least because bankers are routinely blamed for getting us all into this mess in the first place.
I will leave the rights and wrongs about this for someone else to argue but let’s consider the effect this will have on the prime housing market. Since the downturn, many lenders have significantly restricted the amount of bonus they will take into account when deciding how much to lend. So a higher basic income makes a much sounder basis for lending. During the last housing boom, City workers relied on large bonuses to support fairly modest basic salaries when it came to gearing up and buying a sizeable home. Now, theoretically at least, they would be better able to afford their mortgage from regular, guaranteed income. While that may mean less of a flurry of bonus spending on big houses at certain times of the year, it should mean a steadier trickle throughout the year.
In the prime London market, prices are rising but the reasons for this are mainly to be found beyond these shores. Investec Private Bank says the number of residential properties worth £2m or more in London increased by 57% between 2008 and 2010.
Clearly, the top end of the market is in rude health, despite problems lower down the scale. But many of these buyers are from overseas and a significant number will pay cash. London is a popular destination for ultra-high net worth individuals from around the world, particularly those living in troubled jurisdictions who want security and a good investment prospect. The prime London housing market clearly does not rely on City workers’ bonuses to thrive.
More high-street lenders are offering mortgages of up to £2m – something that wasn’t happening a couple of years ago. So confidence is returning at the top end at least, and these lenders want a piece of the action that private banks have so successfully made their own in recent years.
Whether it’s down to bonus cash, higher basic salaries or significant foreign investment, part of the housing market at least shows no signs of slowing.
Melanie Bien is a director with Private Finance
