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City bonuses to inject £1bn into UK property

Tuesday, 14 December 2010 3:07 PM

Bankers' bonuses are set to boost the residential property market by £1 billion over the next few months, it has been predicted.

Yolande Barnes, head of Savills residential research, said: "We expect to see bonus money coming into the prime London market early next year, though not to the extent that it triggers a measurable price rise as seen in the past."

According to the Centre for Economic and Business Research (CEBR), those working in London's financial services sector will be rewarded with bonuses totalling £7 billion this year. This is 45 per cent less than in 2007, the year in which the property market reached its peak, but only five per cent down on last year.

Barnes added, "General caution and the method and timing of the payouts mean that only a portion will be invested in property. The £1bn boost will mean that any falls in prime London will be contained at a marginal -1 per cent level, compared to a -3 per cent fall anticipated for the UK as a whole."

One factor that will affect how much of an impact bonuses have on the property market is how lenders treat them. Mark Harris, director of Savills Private Finance, believes that lenders can, broadly speaking, be divided into two categories.

The first consists of 'relationship lenders', private banks which treat bonuses on a case-by-case basis and will often be happy to assist.

The second comprises 'automated lenders', whose decisions tend to be made by computer systems and so have less power to take bonuses into account.

In reference to the potential problems posed by lenders Harris said, "To be fair I think the whole thing is being largely overplayed. We can source many lenders who will support bonus-driven debt. Most of the bankers I know are expecting big numbers this year, but we could see borrowers reluctant to rely on bonuses as they have been so badly scared."

Savills also predicted that the market could be boosted further when additional deferred bonus payments are made, but again, this will largely depend on the lenders.
 

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