London property boom at fever pitch

London Briefing: tougher rules on mortgage lending beginning to scratch boom surface

Londoners have long abandoned the notion that talking house prices is trashy and – with the property market seemingly at bursting point – even the smartest of people are gripped by land fever.

Property in the capital caught fire in the first half of 2014 with house prices rising by 20 per cent annually. The mini-boom may have been outstripped by Dublin's runaway 24 per cent year-on-year house price rise, but the market is more than hot enough to worry Bank of England governor Mark Carney and chancellor George Osborne, who are beginning to beat back the flames.

The capital’s brashest estate agent, Foxtons, has proved a reliable bellwether of the capital’s property market.

The chain expanded rapidly in the decade before the financial collapse, branding its green and gold minis, Starbucks-style coffee lounges and aggressive sales tactics on to the consciousness of boom-time Londoners. Then in 2007, its founder Jon Hunt sold out to private equity firm BC Partners for £370 million ahead of the crash in what he later called the "sale of the century." Three years later, BC's bankers came knocking and Foxtons was forced through a painful restructuring, with its lenders writing off hundreds of millions of pounds of debt.


London market

But Foxtons bounced back ahead of the London market, sealing an IPO last September that valued it at £650 million.

The chain has forecast revenues of £163.4 million for the year to December, but most closely watched will be its market predictions.

Further reassurance for tardy sellers came from property website Zoopla yesterday when it revealed that the UK has nearly 500,000 paper millionaires, thanks to booming house prices, most of them in London and the southeast. But tougher rules on mortgage lending are beginning to scratch the surface of the London boom. Even more tellingly Bank of England’s monetary policy committee was split 7-2 in its August vote on interest rates, a division that has historically proved a tipping point for rate moves.

There is a sense that those who are going to sell need to get the decorators in, pronto.

HP vs Deloitte An increasingly bitter and angry Hewlett-Packard said this week that it planned to sue the UK arm of accounting giant Deloitte over its botched takeover of London-listed Autonomy. HP bought Autonomy, which is audited by Deloitte, for $11.1 billion in 2011.

After finding holes in the IT company’s numbers, the US giant accused the UK business of vastly inflating its profits; HP then slashed the book value of its acquisition by $8.8 billion, attributing $5 billion of that mammoth write-off to extensive accounting errors and mis-statements. The US company’s announcement came – naturally – as part of labyrinthine US litigation over the acquisition, which has seen HP’s shareholders bring a class action against it. HP, like Autonomy and its executives – whom both HP and its shareholders are also suing – deny any wrong-doing.

Deloitte’s UK arm, as the auditor of Autonomy, categorically denies wrongdoing but as the UK company’s auditor it is an obvious next target for an increasingly vengeful HP. At the root of the argument lies a tangled web of eleven11th-hour deals which increased the value of the company in the run-up to the takeover.

Software companies

It is not unusual for software companies to close their biggest deals in the few days leading up their financial quarter; the problem, HP would argue, is that when it got the keys to the head office, it couldn’t find the money from those deals. HP will be pushing for the case to be heard in US courts; actions against auditors rarely get off the ground in the UK. Helen Power is a freelance journalist.