Rebecca Page is aching to buy her first home. Her parents, Lynda and David, are happy to give her a 10% deposit, but think she should sit tight and watch the housing market. “My mum has seen what is happening in America, where there has been a huge property crash, and thinks the same thing is going to happen here,” says Page, 25, a staff nurse in Notting-ham. “She wants me to hold off until after Christmas, in the belief prices are going to fall.”
Like many of her peers far too young to remember the previous big property crash, in the early 1990s, Page cannot imagine prices falling, and fears she will miss out if she waits too long. “All the friends I graduated with have managed to make money by owning their own home. Paying rent is a waste of money.”
After six months of househunting, she has made offers on two houses, both well below the asking price. With the first, the seller had already dropped the price and would go down no further. Now she has offered £118,000 for a two-up, two-down, on the market for £125,000. If this fails, she might heed her parents’ advice and wait rather than offer more.
Page is just one of tens of thousands of potential first-time buyers trying to decide whether to buy now or sit tight in the hope that prices will drop. Their uncertainty is fuelled by predictions of further falls as a result of the five interest-rate rises since August last year and the turmoil on the financial markets, which have made credit harder to obtain.
Earlier this month, the Nationwide building society forecast that house prices, which have recorded near double-digit growth this year, would be flat in 2008. Max Ziff, chief executive of the estate agency Humberts, says he believes homes below £350,000 will be worst hit, as potential buyers are more likely to be squeezed by tighter lending policies in the wake of the credit crunch – viewings are at their lowest since last Christmas.
Bad news for homeowners, however, could be good news for first-time buyers: a soft market could be just what they need to find a bargain. “We are not in crash territory,” Ziff says. “We predict that prices will either remain flat or, in the worst-case scenario, fall by 6% next year. But, over the long term, prices tend to recover. It is dangerous to try to call the bottom of the market.”
Ziff says first-time buyers might have a greater choice of homes in spring, when sellers who have failed to attract any offers will be even more desperate to shift their properties, but by then there may also be more first-time buyers competing with them. “Those looking to buy in the quieter months, with fewer buyers and less competition, can drive a harder bargain,” he says.
Ray Boulger, senior technical manager at the mortgage broker John Char-col, suggests that first-time buyers should hold off and save for a deposit, which will give them a greater choice of mortgages – but agrees that now could be a good time for bargain-hunting. “A year ago, first-time buyers would have wanted to buy as soon as they could afford it; now they can use the sluggish market to their advantage. They are in a strong position. There will be distressed sellers out there who need to make a sale. It is worth putting in that cheeky bid.”
New-build properties are worth a look – especially in the run-up to the year’s end, when developers are desperate to shift stock to balance the books. Several are offering mortgage subsidies or other goodies. But choose carefully: the prices of new-builds have not performed as well as those of existing properties in recent years, and there are gluts of flats in some areas, especially northern cities.
Auctions are another place to bag a bargain in a weak market. “The number of repossessed homes we have received has doubled over the past six months,” says Tony Webber, an auctioneer at Eddisons, in Leeds, who has sold houses throughout Lancashire and Yorkshire for well below £150,000. “And, although you can’t just sell them on at half price, they can be bought for 10%-15% less than you would pay through an estate agent.”
First-time buyers could also benefit from proposed changes in the tax regime next April, which will see capital-gains tax, levied at up to 40% on profits from second and investment properties, cut to 18%. Some analysts believe some buy-to-let investors, many of whom have tended to buy the same kind of property, will respond by selling, pushing down prices at the lower end of the market.
Lisa Garrett, 33, who works in the music industry, has already used the slowing market to her advantage: she knocked £6,000 off the £245,000 price of a small one-bedroom flat in Battersea, southwest London. “The flat was let, but had been empty for about a month when we went to see it,” she says. “The owner wanted a quick sale and, as first-time buyers, we are not in a chain.”
Garrett and her boyfriend, Sebastien Benne, 29, had been looking for almost a year when they found the place in September. Images of savers queuing up to withdraw their money from the beleaguered Northern Rock bank just days after their offer was accepted didn’t deter them: they hope to exchange any day. “I was concerned, but I knew we would ride out the storm,” Garrett says. “Although some estate agents were constantly trying to get us to raise our limit, we stuck to our budget of £250,000, as we didn’t want to overstretch ourselves. It does feel as though we are swimming against the tide. But I think in London, you are less likely to suffer in the long run, as there is a shortage of housing.”
Savills estate agency expects prices in London to rise by an average of 5% next year – albeit with big variations from area to area – but predictions for other regions vary. Yolande Barnes, its director of residential research, says the safest areas for first-time buyers are neighbourhoods with a genuine sense of identity, rather than an estate agent’s so-called “village”.
Barnes’s latest research also reveals some surprising locations where entry-level properties are especially cheap relative to the market as a whole (see graphic, below left). Average prices in King’s Lynn and West Norfolk, for example, are £169,667, but the cheapest 10% of properties cost £94,634 or less. In Torbay, Devon, average prices are £181,769 – but the cheapest 10th are £99,733 or less.
“The big question is whether the prices are low for a good reason, or whether the locations have potential,” Barnes says. She urges first-time buyers to do their research. “Things that make a difference are commutability, period stock and regeneration projects. Croydon Gateway, for example, might make a difference to that area, and there are cheap, small flats available.”
In areas such as north Norfolk, where first-time buyers are often pushed out of the market by second-homers, less attractive houses away from the coast may also be affordable. Hastings, too, has reasonably priced period stock waiting to be gentrified.
“It depends on the type of stock the first-time buyer is going after,” Barnes says. “If they are older, have saved up and put off a purchase and want a family home, they will be competing with people who have equity already, so it’s going to be nearly as much of a struggle as it ever was. If, however, they are competing for smaller flats, the investor-buyers have dispersed and there will be less competition.”
The days of easy money are over. A first-time buyer with a small deposit, or no deposit at all, may find it difficult to borrow five or six times their income. Some banks are also reluctant to lend on new-builds. “Those that do lend require borrowers to put up even larger deposits,” Boulger says. “The Alliance & Leicester, for example, has stated that borrowers need a deposit of at least 30% if they are buying new.”
Although the Bank of England has signalled that interest rates are set to drop at least twice next year, banks may not pass on the full benefit, as their own borrowing costs have risen. So, first-time buyers must do their maths carefully to work out what they can afford. “A year ago, first-time buyers were probably prepared to stretch themselves and make compromises,” says Richard Donnell, head of research at Hometrack, the property data company. “Now, first-time buyers should rein in. Don’t stretch yourself: let the market come to you, rather than the other way around. But be out there, looking for opportunities.”
You as a country have been brainwashed by those with vested interests into thinking property is an investment. However, it should be viewed as a place to live, not make money. If your small £250,000 1 bed flat increases by 50% so will the 3 bed semi priced at £400,000. You will not make money unless you sell and live in a cardboard box.
If you need a place to live, buy. If prices drop, the 3 bed semi you will buy next will also have dropped. Simple.
Gareth Jones, Dusseldorf, Germany
Anyone buying now is crazy. There are silent tremors for all who work in property of troubled times ahead and there is a massive PR effort on their behalf in the media to encourage continued house buying to prop up the market. In every walk of life (Media, Investment etc) there is someone, usually in an influential position, who owns multiple properties. There is a major effort to PR the Government into looking favourably towards property investors & keeping the property market inflated. If you buy now you are doing a disservice to all first time buyers by staving off a price correction. It's time 25 year olds woke up and realised how dire things are. Vote with your feet and don't buy - then in time we may well have a decent correction. Knacker the property market for buy-to-let Investors and multiple property owners and lets make sure they don't end up with a nice tidy profit after selling up or we will continue to fuel the cycle of misery for ourselves - first time buyers.
Robert Storr, Bishops Stortford, England
In the last month and a half every time I go past a estate agent in Chiswisk, Putney or Hammersmith in London they are always empty. The staff look bored and frustrated. Everyone now knows its the wrong time to buy as house prices every fall even in London
For all you first time buyers, keep your deposit in a high interest account and reap the interest as you profit even more from the thousands falling off property every month in this crash.
Don't buy now property is far to inflated and will fall back to affordable/normal levels.
Gavin, London,
Howard, are you new to the property investment game? Have you not caught on to the overwhelming negative comments on all newspaper comment boxes. I hope you have lots of money to throw away, you will need it, to buy at the very top is financial suicide. If you think that prices won't drop significantly you are in for a rude awakening. A close friend who bought a 1 bed London flat in 1989 for 65k found it was only worth 35k if that 3 years later. The auction estimate was far lower. As for you comment about Guardian readers, I think you are foolish to think only left wing voters think we are in a property crash situation.
T Miller, Oxted, Surrey
I sold last year and am currently getting 6.7% on my cash investment so with house prices in my area fallen already by at least 10% I am at least 16% better off a year! Why oh why would anyone risk buying at the moment? Maybe when things have fully adjusted and wages have come back into line I might consider jumping back in. My estate agent cousin reckons spring of 2009 at the earliest......
Just remember when you here people talking up the market to investigate the hidden interest; they are usually desperately trying to sell whilst actually really trying to sell, or they are trying to keep their property-related bussinesses from going bust! Can't blame them for doing so but don't get taken in this time.
George, aylesbury,
We run a local estate agent. Get your price right and you will still sell in days or weeks. The only reason people stay on the market for months is they ask too much, if you don't sell in 4 weeeks drop your price a bit you will sell. We have noticed real buyers coming back in droves we have had a spectacular December. When you buy just do your homework. Property probably won't go up much next year but it will!
Keith Knight, Uckfield, East Sussex
Mrak (or is it Mark?) from London.
Relax, Mr Howard Hughes is just a spoof - the bit about rents covering mortgage payments gives it away.
T Sparks, Limerick,
never mind the interest rate, credit crunch or 2012 etc.
why i bother to buy - a 3 bedroom detached house in a quite area and near a good school bought at 726k this year, ask rent for 1400/m and still on market. by the way, I AM living in London.
today's "bargain" may not be a bargain at all.
she , london, uk
The voice of reason for first time buyers:
Has anyone actually considered the fact that a property is a place that you might want to live in? Why does a property have to be an 'investment'?
If you find a property that you like, If it makes you happy, and if you're sure you can afford it, then BUY IT!
Life's too short to worry about whether the market will slow down / crash / fall etc. Noone know's what's going to happen so don't let the constant speculation ruin your chances of getting what you want.
John, Manchester,
It's a shame that Howard Hughes' extensive property portfolio hasn't helped him master the difference bewteen "hear" and "here". First Time Buyers want to get on the ladder. Those who own multiple properties make this task harder, and therefore you will be disliked. Get over it.
mrak, london,
Interesting how many people hear seem to positively gloat at a cooling property market - as though those who want to purchase and hopefully profit from their property acquisitions are somehow to be derided. One wonders why you aren't all typing on the Guardian's site, if this strain of capitalism is so repellent to you all. For the record, I am familiar only with London's market, but I have purchased 1.1m worth of property in the capital in 2007, and am currently expecting to complete on 2 more flats early 08. Will I stop? Hell no. Rents are still more than adequate to cover repayments, capital values are still rising, particularly if one targets property that needs improving, and with Crossrail, 2012, continual investment / gentrification, global money settling in London etc I'm in this for the long haul. London is one of the world's top 3 cities - prices may 'settle' a little , pause for breath etc, but plummet? Nope. I'm making a fortune. You should be too.
Howard Hughes, London,
Look at the futures market and you will see that London traders are betting on house price reductions of 7% next year. On a £250k home that is equivalent to £17,500. Of course not all City traders think prices will fall 7%. Some are betting that it will be less and others more. House prices will not rise in the next six months but it will become apparent if they are going to fall significantly or not. Wait.
Steve, London, England
A one bed flat in Battersea is not a good place to ride out a storm. How long can you put off having a family? Some late entrants to the market in London during the last crash still had negative gains 12 years later .
Economic ripples effect housing much slower than company shares and many off them are still going down (look at the Barrat/ Birse over the last few months down by -50%)
Has anyone polled how many bankers and financiers have dumped their property investments? Rats and ships come to mind.
chris, Stockport,
Loving the sources for this article: 'unbiased' estate agents saying there won't be a crash and now is still a good time to buy. Pure fantasy. And deluded people thinking they've done well to buy now cause they got 6k off a 245k asking price... Seller must be laughing right now.
There is no way I'd be buying right now... The penny is only just starting to drop that houses aren't worth as much as people think they are.
Hugh, London,
Vincent........we own a couple of rental properties and if there is such a shortage of properties in London, as the property lobby always claim, why have rents done nothing in the past few years? Also the economy is expected to slow, so what will happen to the tenants? Many will head back to Eastern Europe, as they will be the first to lose their jobs. So what does that say about demand?
This boom has been created by a tidal wave of cheap money and lenders fighting to offer ever more ridiculous multiples. Thankfully for the benefit of us all this dangerous practice seems to have finally stopped. Hopefully for ever never to return. Now we just have to cope with the fall out and I remember 1989 -94, where the bubble was small compared to what it is now. Oh, btw, it was the housing crash that preceeded the recession, not the other way round
Davie P, London,
Now is not the right time to buy or even be tempted. Put your money away and wait six months and, there are lots of people with vested interests in maintaining the market or minimising the downturn and this requires them to persuade first time buyers that any little drop in prices is a reprieve from an otherwise ever increasing market and therefore to persuade them to take the plunge as soon as they can. While there may or may not be a crash, the market is moving in our favour and this dynamic has some time to run.
dermot, London,
I saw the crash in the 80's,my dad paid £40k for a three bed semi then,that is now woth £400K,I saw the 90's crash,I bought a flat for £23K at half the price of the year earlier,everyone who believes we are not in a storm is fooling themselves,there is no way a bog standard semi/terrace is worth £600k+,what happened to houses being a roof over your head?We are paying monopoly money just as agents think mugs will pay,well,the mugs have been forced to turn and refuse to be mugged anymore because we simply cant afford to be.Everyone,wake up,smell the coffee,personal debt out of control-nowhere left to shunt those credit card debts,US dollars defeated,US in recession,banks havent a clue how much they have really lost now or in the future,the property market is going to suffer a severe shock!By the way banking is financial incest,slight chill and chaos!
A.Thomas, London, UK
I would advise Rebecca to invest her (borrowed) £118,000 only if she was prepared to live in the house for a very long time. Richard from Geneva is correct. These things take far longer to play out than most people expect, which is OK if you're settled, but not if you're young and want to pursue the opportunities that life throws up from time to time.
Eric Murray, Auckland,
Fair points, but one thing your forgetting to factor in is the massive under supply of houses in the UK market. The only true problem is that even the banks themselves are unsure of haw far the sub-prime goes, and this will be the main factor determining where the market goes as consumer confidence will feed off this. My personal prediction is that the property market will suffer a slight slow down over the next 18 months - 2 years, where prices may fall slightly in some areas. However, for the creative individuals this is the time to innovate, and while many people are busy with there dooms-day predictions, may of us will be making money out of property.
Vincent Millen, Watford, England
WARNING! THIS CAN SERIOUSLY DAMAGE YOUR WEALTH.No persons, especially overstretched first time buyers shoold be entering the property market. Wait a few months for prices to settle a lot lower. More importantly be aware that the apparent demand from employment will also dry up as consumer credit is squeezed.
Even if this Government and the BoE allow the pound to depreciate rather than maintain an effective rate of interest we will have a recession but this will be made a whole lot worse with inflation added to the mix - STAGFLATION for those who remember Labour in the seventies.
Steve Marchant, Torquay, England
House price crashes take years to play out.
Buying now with a tiny £6k discount is like buying Northern Rock shares at £12 pounds in February, because that was a discount to their £12.50 high.
Richard, Geneva, Switzerland
Bargain hunting as defined above is when a property sells for a bit less than the asking price, as the seller is desperate.
That is not the same as waiting for prices to fall or even asking prices to revert to the actual house price of a year ago i.e. not the same as a zero price increase..it is a cut in an over inflated asking price.
Put another way, even if I get 5% off the asking price on the houses in my area, that is still some 15% above the price of the last house that was sold (less than one year ago)....not much of a bargain (a rise in asking price based on agents trying their luck). I call that still driving up the market
London is the most vulnerable area to a downturn. The City relies on the US more than anything else. Bonuses are about to fall..they boosted the market on the way up but will not have an impact on the way down? London prices have risen most rapidly. Most economic migrants are in the South east. Is the SE economy suffers these immigrants will leave
Raj, London,