Like summer itself, the property market lately has proved a flop. Pretty
terraced houses that would have been snapped up in the spring sunshine
languish on the market. There is a forest of “for sale” boards up, but few
that say “sold”; and many people who rushed to sell their homes in late May
and June, to avoid paying for a home information pack (they finally become a
reality for four-bedroom homes on Wednesday), have yet to get a nibble.
Even estate-agent speak is changing. The talk now is of “repositioning” –
cutting the price – and they are chasing “offers in the region of”, not
“offers over”. But there is one group of people for whom none of this is bad
news: indeed, they’re overjoyed.
“We’ve entered a buyer’s market,” says Lucian Cook, director of residential
research at Savills, the nationwide estate agency. “It is a turnaround since
the beginning of the year: three months ago, it was definitely a seller’s
market. The average homeowner is going to have to take a more realistic look
at the market this summer.”
Matt Mannall, an associate partner in the Henley office of Knight Frank,
another nationwide group, agrees. “For the first time in ages, buyers,
especially if they are cash- and chain-free, are in a strong position.”
It is one that they have not been in since 2004, although industry analysts
say the signs of a market reversal have been looming for a while.
Admittedly, on the wide, tree-lined streets of Ken-sington and Chelsea,
house prices have risen by 32% this year, according to Knight Frank; outside
prime central London, however, the picture is rather different. Both the
Royal Institution of Chartered Surveyors and the National Association of
Estate Agents report falls in the number of new buyers, who are being put
off by rising interest rates, ever higher prices and, lately, the dismal
weather. Allied Surveyors, the UK’s largest independent firm of chartered
surveyors, says that the market has turned in the past fortnight, and that
“it’s more doom than boom”.
Figures from the housing-market analyst Hometrack (see graph, below) show that
in the past two months, the average time it takes to sell a property has
risen sharply. In greater London, it is no longer two weeks but three; in
Wales, it is nine and a half – three times as long as it was just nine weeks
ago. “London has put a gloss on the figures for the past 12 months,” says
Richard Donnell, Hometrack’s director. “Prices have been driven by a
shortage of stock and strong demand. Now that this is no longer the case,
the froth is coming off. The home-grown national market is definitely
slowing in the East Midlands, the northeast and Wales. Even your average
family terrace in a less fashionable part of London will start to feel the
pinch.”
The significant slowdown started at the beginning of June as interest-rate
rises began to bite. “The market has slowed dramatically, especially in the
£700,000-£1.5m market,” says Robin Thomas, a partner in Strutt &
Parker’s Exeter office. Mannall agrees. “Houses that a couple of months ago
were valued at £925,000 are £895,000 today, and a £550,000 house is now
£500,000.” It is this mid-mainstream market that is particularly affected –
this is a slowdown we are experiencing, not a crash – so there is still
little joy for first-time buyers. People who have sold up in one of London’s
smarter postcodes and are hunting for their country-house dream, or those
leaving a southern suburban semi to return to their northern roots, are in
the strongest position.
So, how best can potential buyers take advantage of the situation? The first
rule is: shop around. There are bargains to be had, particularly if you are
flexible about location. The price of a beautiful Grade II-listed
yellow-stone house near Broadway, in Gloucester-shire, for instance, has
been reduced from £875,000 to £830,000 (with RA Bennett; 01386 852456, www.rabennett.co.uk);
a four-bedroom barn conversion near Quainton, in Buckinghamshire, is down
from £665,000 to £640,000 (with Jon Drew-Smythe; 01296 658270, www.jondrew-smythe.co.uk).
Even in the ever-popular southwest, Glebe House, an eight-bedroom,
six-reception Victorian property in Chud-leigh, 10 miles from Exeter, on
sale with Strutt & Parker, has seen its price fall by £75,000 to
£750,000.
If you want to buy back into the capital, you may have to compromise on the
location and number of bedrooms. Even so, buyers can find reductions: a
three-bedroom house in Clapham, southwest London, for instance, has been
reduced by £25,000 to £725,000 (with John D Wood; 020 7228 0174, www.johndwood.co.uk).
“Traditionally, people have this view that everyone disappears in August, but
I don’t think that will be the case this year,” says Ed Mead, a director of
Douglas & Gordon, a London estate agency. “There will be lots of canny
buyers hanging around. Anyone who sold up earlier in the year is waiting to
capitalise on the weakening market. As a cash buyer, they will be in a
strong position.”
The next step, says Mannall, is to investigate the motivation of sellers. “If
they need to shift their property before September, and you can move
immediately, offer 5% below. Or, if you’re willing to be flexible about the
moving date, try for 10% less.”
How long is the slowdown likely to last? Savills does not expect the
mainstream market to pick up significantly until the second half of next
year, even if interest rates don’t stay above 5.75% for a prolonged period,
with a peak of 6.5%. That means sellers, too, must rethink their strategy,
as James and Belinda McElvie, who are trying to move within North
Yorkshire’s “golden triangle”, know only too well.
When they first put Ebor House, an attractive four-bedroom home overlooking
the village green in Nun Monk-ton, on the market in May, the sun was shining
and house prices were rising. Seven weeks later, the McElvies, who have two
children, Lottie, 4 and Phoebe, 2, still hadn’t received an offer. A
fortnight after that, they slashed the asking price by £25,000 to £750,000.
“I don’t think we were being greedy,” says James, 43, a commercial chartered
surveyor. “We had four valuations and chose a middle one. We thought it
would sell quickly, but it seems the market is much harder than it was.”
Belinda, 42, is equally nonplussed. “We had a lot of viewings, but no offers.”
she says. “It wasn’t what we expected. All our plans are on hold until we
sell.”
Will their price cut be enough to tempt potential buyers? “You have to be bold
about it,” Thomas says. “Knocking £10,000 off a £900,000 house isn’t going
to make a difference. You have to encourage new buyers and place it in a
different price category.
“If vendors wish to sell, they have to be prepared to accept offers at a lower
level than they could have hoped for a month ago. Vendors should accept
offers at the guide price and not rely on competition to push the price up.”
Donnell is even more blunt. “If you need to sell in the next couple of months,
then you need to be realistic,” he warns. “Sellers may have to take quite a
hit.”
Additional reporting by Lucy Denyer
Tips for buyers
- Be prepared before going in to cut a deal. Do your research on the local
market and find out what properties are really going for, not what sellers
are asking.
- Get to know the seller. Ask the agent why they are moving. Do they need to
move before the school term starts? Have they had an offer accepted on the
house they want? Use your cash advantage if you are chain-free, or any other
flexibility you have to your advantage.
- Register with umbrella websites such as Rightmove, Primelocation and
Propertyfinder for automatic updates on new properties – and publicised
reductions. You will be able to see whether a house you viewed two months
ago is on with another agent at a reduced price.
- Be tenacious. “By nagging the agents, you can get to view things that are
not being launched until September,” advises Cliff Gardiner, head of London
buying for the propertyfinder The Buying Solution. “Hound them.”
- See the summer as an opportunity. “The likelihood is, if you like it, the
other two buyers who might also have liked it a month ago are now away on
holiday,” says Lindsay Cuthill, head of Savills’ Fulham office.
Don’t get complacent. You should still be prepared to move as quickly as you
can – and to pay a premium for prime property.
Tips for sellers
- Time for Plan B. Are you prepared to sit it out and wait until the market
catches up (it could be next year), or do you need to sell now? If you
really need to move on, decide what kind of offer – both in terms of money
and moving date – you are willing to accept.
- Be realistic. If your property has been on the market for three or four
weeks in town – or three or four months in the country – and you have yet to
receive an offer, drop the price by 10% or more, says Sarah Beeny, the
Sunday Times columnist and presenter of Channel 4’s Property Ladder.
- Yes you have heard it before, but declutter, tidy up children’s toys, pack
pets off to the garden and roast coffee beans to create a welcoming
environment. Make the most of the garden and clean the windows to let the
sunlight in.
- Prepare yourself: consider holding off bringing your property to the market
until September, when people are back from holiday. Use August as a
preparation month. Now is the time to make sure that your property is in
immaculate condition, and to get some decent photographs taken, inside and
out, so you can hit the ground running.
- Remember, everything is relative. Yes, you might be selling for a lower
price than you had hoped to get, but you should be buying another property
at a lower level as well.
I think the prices in london will be slashed as Estate agent have priced houses in a rising market. Now the Market has stopped rising they have to re-price the property at pre-summer prices. With property in the country side showing such good value for money , it is inevitable that it is time for them to catch up. And as the country side is so much easier to shake, it will take time to pick up. I don't think the market is desperate enough for there to be a crash. City guys are losing there jobs and bonuses but that only means prices are stopping sky rocketing. With the olympics around the corner I predict a slow rises till 2009 then a huge pre olympic surge.
stevie, london, london
mary
what an optimist
i wish i had your confidence
i remember the last crash that didnt take long to kick off
cash buyer and waiting
neil, montmartin sur mer , france
Replies seem to split between those who want the market to stay high and those who expect a fall. The latter are correct. As has already been said, there is no absolute housing shortage, the stability of rents proves this. Current prices are the result of a speculative bubble and this will burst as soon as enough people choose to cash in. This is likely to be very soon as higher interest rates bite. It doesn't take many BTL investors (or whoever) to cause a crash - economic trends are dictated by activity at the margins. Just look at how many (as a proportion) properties changed hands during the crash of the early 90s - not many. As for wider economic conditions, rising unemployment may not be the trigger the this time but the massive levels of personal debt will be. How many people have financed depreciating assets (cars, plasma tvs etc) on 20-25 year morgages? The assets will need replacing far sooner than they are paid for, leading to an inevitable debt crunch.
Clive, Chichester, UK
I think people are missing the point. The latest data is merely showing is that house price inflation is slowing. This does not mean prices are falling. It means that house prices are increasing at a slower rate.
Mary, London,
Further price increase so far this year is c10%. Furthermore, no one in the market will sell for below the current market levels - I think we will see that the price of houses, as most peoples main asset, is very sticky and not likely to fall unless the economy takes a downturn. There is no sign of the UK economic underperforming. And there is no sign of increasing unemployment. Therefore there is no reason why house sellers will vastly reduce their asking price. Why should they? BTL is a far smaller proportion of the market than people assume. The private rental market is perhaps 10% of the total housing stock, of those perhaps 2-3% will become distressed following the recent rate hikes. Will the quick sale of this small percentage of the housing market trigger a crash? I do not think so.
Mary, London,
This is even more evident when the agents are threatening propertysnake.co.uk with legal action
"Wednesday 1st August 2007Unfortunately in recent weeks, several owners of property portal websites that we have previously linked to have requested that we remove their listings from our site for copyright reasons. We have of course complied with their requests when asked, but we were disappointed in their decisions as we had previously felt that they would be more than happy to receive the free leads from the traffic we were driving to their sites.
Instead, we have replaced all the listings with a new batch which can be seen on the site today. Unfortunately we are unable to provide direct links or photographs anymore. Estate Agents: If you see a house listed on this site and you would like your contact details to be shown alongside it for potential buyers to contact you, let us know using the contact us form"
Simon , London, UK
To Ben,
Have you heard of the theory of the "falling knife"?
Once the market starts sliding, the speculative demand (BTLs, petrodollars, rich Russians) vanishes. Then there is a vicious circle of mortgage defaults and repossessions.
Then, eventually rates do go down -- but not so easy this time: if more and more people come to live to this country, the economy runs at full capacity and rates do not come down... :))
Then it takes years to rebuild confidence. We know from the early nineties.
All in all, between buying a home and keep my money on a savings account, well the savings account of course.
Best luck!
Richard, London, UK
If some people posting here really want a crash - and if you are out of the market of course you will, fair enough.
To them I have to say sorry, I just don't see it. With more and more people moving to this country and supply failing to keep up with demand the current slowdown will turn out to be nothing more than a blip - just watch the whole thing take off again when interest rates come down.
Ben, London,
Whilst the market has changed in a sense that six months ago people were prepared to pay silly prices for properties on busy roads, by the railway etc, I think it's early days to draw a conclusion. Summer is somewhat a slow period but the weather hasn't been brilliant either. By the mid autumn we should have a clearer picture of what's going on. Please bear in mind that back in 2000 the property market was very slow during the summer months and then suddenly picked up again in the autumn. However, somehow I can't see this happening this time. In the current climate of rising interest rates and stagnated salaries, a correction is inevitable.
Peter Vuorela, London, UK
This is just the start of things to come. People will be talking about this 'slowdown' about it in 10, 20, 30, 40, even 50 years time. It has not been labelled as a house price crash so that it does not raise panic among those with vested interests. We will only know that it really was a house price crash after the event.
The real rate of inflation rate must be somewhere in the region of 6.5%. It is all just starting to unravel now. In years to come, it will be known as 'The great Crash'. It will be different to the house price crash of 1989-96. It will be much much worse...
.
Even Alan Greenspan in 2005 told the Central Bankers at Jackson Hole in Wyoming that they risk suffering a house price crash if they continue to drive property prices higher, as they were investing in houses as if they were a one way bet.
Check out www.housepricecrash.co.uk
Michelle , Surrey, England
I am one of the people who hope the prices come down. I am a graduate, however after leaving university with huge debts these, have been settled. I live in Leicester, I am on £18200 for the job I do, and the average wage I Leicester is approx £12-15000.
If I was to get a mortgage 3 1/2 times my salary this would be £63700. I no logger qualify for graduate mortgages over 5 years and due to my previous debts need a minimum of 10 % for a mortgage.
1* Rent has also gone through the roof, my rent and council tax is over half my monthly income, and then the bills on top, I live on £40 a week, this is paid by the tax credits I qualify for as I am disabled, I would not be able to live without these. I am unable to save due to this, and therefore unable to save the 10 % needed
2* property in Leicester, you are lucky to find anything under £90000, hence this is more than 3.5 time salary and therefore unable t get a mortgage and unable to save the 10% needed.
Home owner: probably never.
angela sansome, leicester, england
hortage of stock and high demas is being punted as the reason for the housing market haing risen so sharply, but he rental market flies in the face of this 'apparent' logic. Pure speculation is the real reason for housing reaching silly levels.
Chantel, UK,
"This is a slowdown we are experiencing - not a crash" - A slowdown is a reduction in the rate of increase. Your article refers to asking price FALLS of between 5 & 10% in just 3 months. That is not a "slowdown" at all. It is a fall in real terms, equating to 20-40% per annum. In anyone's language except vested interest groups such as banks and estate agents, that is a crash. Words are important, please use them wisely. All buyers, including FTBs would be well-advised to sit on their hands for some time to come.
john smith, manchester, uK
A change of approach by an EA but the real killer is when September comes and the offers don't roll in. Nobody believes the market has legs anymore, even those with vested interests.
The big thing that has happened in the dying days of the property boom is that the media has lost credibilty, sold itself completley to the sunday property supplement advertisers and banks. It took me a long time to understand what was going on but the penny has dropped.
UNIVERSITY FEES - A generation of people from backgrounds labour should have been protecting are about to experience their first recession and with the combination of rising house prices since we finished university, mass emigration of capable foreigners into this labour market (who got free 3rd level education in their own countries) and the the terrible manipulation of the housing market in general.
Generations of union members must look at Blair and wonder how they were sold out.
Neil, London,
The website www.propertysnake.co.uk allows buyers to search for properties that have been priced down. A useful addition to this article it seems to me.
Michael, Oxford,
At last, the long-awaited House Price Crash has finally started! Ignore estate agents telling you this is a "buyer's market" - this is no time to be buying, but holding off and waiting for vendors to reduce their asking prices. FTBs and those needing to trade up have been priced out for so long - be patient; in a couple of years' time you will look back at prices today and laugh at how brainwashed people have been to pay such ridiculously high prices. Just remember, the mortgage debt will be with you a long, long time - if you wait, then it will be a lot less to pay over the rest of your life, which will significantly increase your quality of life for the rest of your life. Be patient & hold off buying for a while!
Vicky, UK,
Quite right , Richard. Not a crash but a slowdown - buyers get in there and take advantage of these tiny percentage reductions! Once again we have those with a vested interest in the property market trying to talk up the position and reignite an already ridiculously overpriced market. No one can say at the moment whether or not this is the start of a crash - this is a definition always applied with hindsight. The best thing any FTB or buyer seeking to trade up can do is nothing at all. This will force prices down even further (who knows how far - 40 % as some predict?) and eventually you will be able to make a sensibe investment at a price which is affordable in the long-term.
George, Brighton, UK
I agree with Richard. Don't be bamboozled by the sudden talk of a "buyers market" into rushing out to buy while fearing that they'll soon be going up again - they won't. Interest rates are likely to rise at least once more this year, and distressed mortgage payers will take a bit hit over the next 6 months as the discounted rates they got in 2004/5 come to an end and they are forced to remortgage at much higher monthly payments. The other significant factors are the turmoil in world financial markets and the American house price crash (it's a real crash over there). That makes for greater uncertainty and the liklihood of a reduced "london effect" rippling out this year as city bonuses fall from the highs they acheived in the last couple of boom years. The prices of most houses on the market right now are probably around 20% overpriced and all buyers should be looking for a 20% reduction before you consider buying.
Anthony Smythe, Guildford,
No surprise in this slowdown. Just look at the share prices for the UK Builders. They have been sliding since early in 2007, and most are now off about 30 percent from the top. A slowdown in the property market about six months after the Builders peak is completely normal. and the Builders share slide is warning that UK property may have much further to fall.
DrBubb, London & Hong Kong, China
"Are you prepared to sit it out and wait until the market catches up (it could be next year)" - why is there such a zealous view that the market WILL rise in the short-term? I would have thought the beginning of a slowing market may indicate FURTHER slowdown next year...
G, Crawley,
The best article I have read in a long long time. Some reality is coming to the market at last and although it has taken some time the media and the public are waking up to the fact that bubbles burst.
You say slowdown - I say crash. Just look at how US house prices have been tumbling, we have a more inflated bubble and much larger ratios of debt and so are due an even bigger fall !
AR, London,
And now let's go with the big price correction!
Why would buyers want to buy in a buyers market?
you wait a few months you save a couple of percentage points,
yesterday was £550k, today is £515k, next month is £500... be patient
Wait for the financially-strained BTLers to sell up en masse.
Wait for the interest rates to bite, but seriously bite
Autumn 2008 is the earliest we FTBrs should look for property.
Richard, London, UK