With the credit crunch squeezing and the cloud of a downturn in house prices
looming, the property market has become an unpredictable place. Sellers
cower at home waiting for the storm to pass, while all but the boldest of
buyers are holding onto their cash until they see what is happening with
interest rates and whether we are going to hit a recession.
“It really is a jungle out there. It’s a Darwinian world of the survival of
the fittest,” says Phil Spencer, presenter of Channel 4’s Location,
Location, Location and director of Garrington, a property-search
consultancy. “To get ahead in the market, you have to be prepared to fight.”
In times like these, three distinct categories emerge: victims, survivors and
predators (or, to put it more politely, “the fittest”). The question is,
which category do you fall into? And how can you improve your situation and
keep getting ahead in the property market?
The fittest
These are the guys and girls who make a killing with their property portfolios
however flat the market. “The fittest recognise opportunities and aren’t
afraid to go for them,” Spencer says. “They tend to be entrepreneurial and
accustomed to taking risks – and getting rewards.” Not too highly leveraged,
most members of the group are cashed up and free to snap up bargains without
having to release equity from another property. “They can afford to be
gamblers,” Spencer says, “and they’re ready to play the game.”
Fergus Wilson, 59, is a good example. He and his wife, Judith, 57, both
retired teachers, started investing in buy-to-lets in 1991 and now own 800
houses and 30 flats. Despite the slowdown, they are still buying, on
average, one property a week. Last year, the pair ranked 397th on The Sunday
Times Rich List, their wealth estimated at £180m.
“We’ve got where we are today by using our heads,” says Wilson, who finds most
of his properties through estate agencies, and has managing agents to deal
with tenants. He sticks to several cardinal rules, which include buying only
two- and three-bedroom houses. “People only live in flats if they’re
financially strapped,” he says. “And we want well-behaved tenants, not
people for whom you have to sort out Asbos.”
The Wilsons also always buy properties “within arm’s reach” – that is, no more
than 30 miles from where they live – and won’t buy anything above £250,000,
meaning they stay in the lowest band of stamp duty.
It’s not surprising Wilson always manages to get a good deal. “Someone is
always trying to rip you off,” he warns. “Anyone can buy a Mars bar for 55p;
the trick is getting it for 40p.” Recently, he convinced an estate agent to
knock down the price of a house from £245,000 to £180,000.
“Agents know to come to me if they think people are prepared to drop the
price,” Wilson boasts. In a few instances, he has bought properties from
people in financial difficulty and rented them back to them. “It’s sad
sometimes, but we’re in the business to make money, not to house people,” he
says. “People end up in financial difficulty because they don’t pay
attention. They’re busy watching the rugby rather than doing their
paperwork.”
Trying to stay at the top of the tree?
Gary McCausland, a developer who started from virtually nothing and now buys
and sells thousands of properties internationally, says you must buy for 20%
less than the market value, and advises looking for quick sellers,
repossessions or people emigrating. Search in up-and-coming areas, he says,
and avoid going over the top with interiors if the market can’t afford it.
“You want to buy something you can add value to,” he says. Spencer agrees:
“There’s always someone selling up – a victim, if you like – and you need to
snap up what you can.”
Philip Stewardson, who has built up a portfolio of flats and family homes in
the Midlands that he rents out, suggests considering unusual properties to
which you can add value. “We buy things like pubs and convert them; we’re
currently converting a dental laboratory into flats,” he says. “The day when
you could just buy a traditional house, and expect to put a tenant in and
make a return, are long gone.”
Survivors
The majority of us are survivors, says Spencer, who estimates that 65% of
property-owners fall into this camp. “We have been cautious and sensible
with our money, but haven’t saved for a rainy day,” he says. “You might have
made good investments, and have a fair amount of equity built up in your
home, but, because you have no savings, you are being held back in the
cutthroat world of making money from property.”
Gemma Taylor, 35, is a typical survivor. After the sudden death of her father
in 1991, she inherited enough money to put down a 50% deposit on a £72,500,
three-bedroom terraced house in the centre of Guildford, Surrey.
“It was just after Robert Maxwell had jumped off a boat,” she says. “And,
although I was only 19, I decided there and then that property was going to
be a safer investment than a pension plan – as long as you hang onto it for
as long as possible.”
By 2000, she had opened a market stall, selling crystals, on the West Pier in
Brighton, and decided that she wanted to invest further in property. She
bought a two-bedroom flat in the city’s trendy Kemptown area for £95,000,
which she rents out. Then, two years later, she decided to pursue her dream
of opening a crystal shop in Guildford.
“I needed to borrow £50,000, so I used the house as collateral,” she says.
“But I then needed to borrow another £50,000 to pay for stock, so I
remortgaged the house. I’ve remortgaged every three years, on a fixed-rate
mortgage. My financial adviser always looks out for a good deal for me.
“My house has just been valued at about £360,000, and I have only £150,000 on
my mortgage left to pay, so I choose to think that I am ahead.” Taylor does
not, however, have a savings fund to fall back on, which is her next
priority.
Trying to join the fittest?
Prioritising savings, as Taylor is trying to do, is key when moving into
predator territory, as you need to have some capital available to move ahead
without worrying. “At the moment, cash is king,” says Ben Bloomfield, 27,
who has been developing property for the past seven years.
Spencer even advises selling up and renting, so you will be in the best
position to move fast if a good opportunity comes along. “Do the sums,” he
says. “Even though there has been a rise in rental values, it still makes
sense.” He also advises flexibility. “In the current market, there is no
pressure to reach quick decisions. If you want to play, sell up, take what
you can get, put the money in the bank – and rent. Then get out there and
hunt down some opportunities.”
Victims
“If you have overstretched yourself, remortgaged your property, spent the
equity on school fees or holidays, and are thus struggling to afford your
mortgage repayments, you could fall into the victim category,” Spencer says.
“Or you may be a buy-to-letter who was made to feel wealthy during the boom
years.”
Typical victims are people whose income has moved from double earnings to a
single income or those who have borrowed beyond their means. It’s a scary
place to be and, if you’re at this stage, you’re hovering dangerously close
to rock bottom – as Mark and Diane Bouncer recently found out.
The couple, who initially rented a two-bedroom house from Walsall council,
bought the property in 2000. It was valued at about £45,000, but they got it
for £17,950 and took out a mortgage of £27,000 to cover the purchase price
and pay off some other debts. Together, they earn about £22,000: Mark, 43,
has a job in a factory and Diane, 50, works part-time as a carer.
They started to fall into arrears because of illness, dropped behind with
their household bills and were hit with penalty charges, insurance and legal
fees. The couple remortgaged up £95,000 and took out a bank loan, but
eventually everything became too much. Last August, with debts of more than
£142,000, they declared bankruptcy. Their house was repossessed and is on
the market for £115,000. The couple now live in a rented flat. “Thinking
back, after all the years of struggling, trying to buy the house in the
first place was all for nothing,” Mark says.
Trying to become a survivor?
The first thing to do is talk to your lender. “Tell the mortgage company
you’re not keeping up,” McCausland says. “They’re usually very good and will
help you to restructure.”
Critically, Spencer says, you should reduce your other costs. “Sell the pricey
car and buy a cheaper one, rent out a room or take a second job,” he says.
“We live in a society of instant gratification, with expensive holidays,
plasma screens and eating out. We don’t save like other generations did – we
need to relearn how to make do and mend.”
Garrington; 020 7376 6780, www.garrington.co.uk
Where are you in the food chain?
Take our quiz to find out
1 Do you spend your free time:
a) Barricading the door against the bailiffs
b) Planning menus with which to wine and dine your mortgage adviser – now a
friend
c) Congratulating yourself on your property portfolio in prime central London
2 Interest rates are cut, reducing your mortgage repayments. Do you:
a) Breathe a sigh of relief. You’ll be able to feed the cat again
b) Set aside the difference for a rainy day
c) Call your investment adviser: the money you are saving could become the
deposit on another buy-to-let
3 Property prices in your area start to fall. Do you:
a) Panic – at this rate, you’ll be in negative equity soon
b) Hope it’s only a temporary blip
c) Get on the phone to the estate agent and ask if he has any good
repossessions
4 Your primary residence is:
a) Your mum’s spare room: your house has just been repossessed
b) A three-bed family home in Wandsworth
c) A smart flat in Knightsbridge – but prices should soon be low enough for
you to snap up the rest of the house
5 You want to move up the property ladder, but are concerned about the
costs of stamp duty and need to cut back. Do you:
a) Buy only “own-brand” from supermarkets
b) Rent out your converted loft to a friend
c) Take the profit on some other investments
Answers
Mostly As: Oh, dear. You’ve got “victim” written all over you. Get on
the phone to your mortgage lender, pronto
Mostly Bs: Well done. Gloria Gaynor’s I Will Survive must have been
written for you
Mostly Cs: Congratulations, you are a fully paid-up predator. Grrrr!
