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Bankers’ Bonus Cuts

By Jo Eccles

The EU recently announced a cap on bankers’ bonuses of one time their salary, or up to two times their salary with shareholders’ consent. This has caused questions on how much it will affect the property market.

Certain parts of London (such as Fulham) and the South East of England (such as Sevenoaks and parts of Surrey) have seen bonus money contribute to the large pre-credit crunch house price gains.

However, the impact of bonus cash has been subsiding since the 2008 crash. Previously, there would be a surge in housing market activity at bonus times, but this has become much less prominent since large portions of bonuses started to be paid in shares, as opposed to cash. The market has therefore been adjusting to less bonus money for a number of years now.

It should be acknowledged that large bonus payments did have their advantages as the bankers would pay income tax on their bonus amounts, contributing to the UK economy. However, the London property market is now much less reliant on bonus cash and it’s now overseas money which is propping up prices at unaffordable levels. This is especially the case in prime areas, and the effect is trickling down throughout London, pushing buyers out.

So, what’s in store for bankers (many of whom are clients of ours)? At the top end of the pay hierarchy, I expect this to have a big lifestyle impact. However, for those bankers earning more modest sums, this move could actually help them to a certain extent as it’s likely salaries will increase to counteract the lower bonuses, making it easier to get a mortgage on the higher guaranteed pay amount.

With overall pay coming down in the City, which is such a huge sector, I would expect this to take some heat out of the market which can only be good news for buyers.

If you have a question you’d like Jo our team at SP Property Group to answer please email info@sppropertygroup.com or tweet her @joeccles.