Press Article
METRO - 13 October, 2011
Banker bonuses and the effect on the market
By Jo Eccles
The think tank, Centre for Economics and Social Research, predicts that City firms will hand out bonuses totalling £7.2billion, up from £6.7billion last year. In previous years, a lot of bonus money has filtered into the London property market. However, this might not necessarily be the case this year due to changes in bonus payouts.
Over recent years, smaller proportions of bonuses have been paid in cash - typically, approximately one third is cash, and that’s after tax. For example, from a £1m bonus, nearly £500,000 will be taken in tax, and usually, two thirds will be paid in shares, so the actual cash sum will be approximately £166,000 – still a huge sum of money, but a much smaller proportion compared to the headline figure. The two thirds paid in shares can generally only be cashed in over a three year period and some banks are increasing this to five years, meaning that people don’t tend to receive huge one-off lump sums anymore. With European and UK bank shares depressed, the banker clients we’re representing aren’t cashing in their vested shares to buy property, as they don’t want to realise those losses.
One of our Credit Suisse clients, for example, is sitting on quite a lot of stock but has opted to buy a more modest property, as Credit Suisse shares are down 41% from the high this year. He’d rather hold on to his shares in the hope of them rising, rather than cashing in at the current low level. This decision is quite common with other banking clients of ours.
Whilst bankers and city clients are still prominent in the market place, they are being cautious, with another wave of redundancies happening at the moment at many of the large banks. We shouldn’t forget that banks are still being strict with their lending criteria too, so those who aren’t buying property with cash are still finding it hard to secure finance, even if they are in a stable, well paid job. One of our JP Morgan clients recently complained that although she is in the top 1% of earners in the UK, she’s still seen as high risk by estate agents and sellers as she’s not paying 100% cash, which so many overseas buyers are.
So, although we can rely on the bankers to remain active in the market, we need other economic factors to underpin it. Whilst the pound is cheap against most foreign currencies, London property will continue to look like an attractive option, but if sterling strengthens against other major currencies, we may see demand tail off. Saying that, London property looks to be a safe investment relative to other options right now, so for the time being I expect there to be strong demand for good quality properties. If only we had a crystal ball and could see further ahead, though!