Readers of this newspaper - or any other, for that matter – could be forgiven
for thinking that it is all doom and gloom in the housing market. Yet even
during a downturn, there will be winners as well as losers. In fact, some of
the people who have done best in the property market over the past few years
sowed the seeds of their success during the dark days of the early 1990s.
This slump is no exception: play your cards right now and, in years to come,
you could be looking back fondly on that place you snapped up in 2008.
So,how do you make sure you end up among the winners rather than the losers?
1Rent, don't buy
If you sold at the top of the market, you will be feeling rather pleased with
yourself as prices continue to fall. Don’t gloat too much, though. If you
own a property and have been intending to sell, make it sooner rather than
later, then rent. The price of the average home in England and Wales has
fallen by £13,500 – or 7.3% – since the market peaked last autumn, according
to Nation-wide. This is more than just a downward blip; nobody is expecting
prices to pick up suddenly, so, in most cases, if you want to move, you will
be better off selling now and renting for a time. For example, Breckenridge,
a five-bed new-build house near Esher, Surrey, is available to rent for
£6,500 a month, while borrowing the money to buy it would cost at least
£8,500. If you have equity in the property you are selling, all the better:
factor in the interest you could earn by investing it in the bank. The
landlord will be responsible for maintenance costs, too, and you won’t have
to pay stamp duty. Bear in mind, though, that rents are rising by 5% a year
in much of the country, and by 8% in London. Another reason not to delay.
2 Trade up
Lots of people are reluctant to rent on principle, preferring to own their
home – even if, in the short term, it may not be the economically rational
thing to do. Yet this is the perfect time to trade up to a more expensive
property: a price fall of, say, 10% across the board, means the extra cash
you have to pay gets smaller in absolute terms – look at it as the rungs on
the property ladder moving closer together.
For example, if you’re selling a two-bed flat that was valued at £260,000, but
has fallen by 10%, you might feel you have “lost” £26,000. If, though, you
move to a fourbed house that was on sale at £520,000 and has also dropped by
10%, to £468,000, your would effectively make £26,000. You’d also save
£6,760 on stamp duty: it is levied at 4% on properties priced at £500,000
and up, but only 3% on those between £250,001 and £500,000 (1% from £125,001
to £250,000).
3 Watch your differentials
Don’t worry, it’s not as hard as it sounds. The principle is simple. The
housing market is always more varied than the headline statistics: prices in
different areas, and of different types of property, are falling at
different rates, which can mean scope for profit. Liam Bailey, head of
residential research at the agent Knight Frank, cites the early 1990s, when
it was attractive for Scots and northerners to migrate south. “In March
1992, you could have sold in Scotland, where prices were just peaking, and
bought in the southeast of England, where prices had fallen by 24% since the
first quarter of 1989.”
It is not so easy this time round, as prices across the country peaked at
about the same time – between August and October last year – and, as the
table below shows, have been falling at fairly similar rates. Yet there are
exceptions: prices are down by 2% on the autumn peak inScotland, but by 20%
in Northern Ireland, which is good news for those relocating west across the
Irish Sea.
If you want to stay in the same area, why not shift from one kind of property
to another? Now might be a good time to downsize to a flat or maisonette:
their prices have fallen by an average of 11.2% in the year to June, more
thandetached houses (down 6.1%) and bungalows (down just 3.8%). New-builds,
in general, have dropped further than period properties – and may continue
to do so.
4Take advantage of the three "d"s
Death, debt and divorce are the three things that keep estate agents going.
However poor the market, some people just have to sell – which can mean a
good deal for the buyer. In particular, repossessions, that great source of
bargains in the early 1990s, are on the rise (although I doubt we will sink
to the depths seen in America, where agents are apparently running bus tours
of repossessed houses). You may have qualms about benefiting from others’
misfortunes, but if you don’t, someone else will. Keep in touch with estate
agents to stay abreast of potential bargains. You will find them a lot
keener to please these days: sales volumes, and therefore commissions, are
right down and they too have mortgages to pay.
Sellers are increasingly committed and motivated. If they put their house on
the market, it is not to test the water, but because they want – or need –
to sell. An empty property costs money: someone is paying the mortgage, and
it is decreasing in value. So work out how desperate they are and haggle
hard.
Gazundering is back, big time. If a deal has taken several months to reach
exchange, and the market has fallen in the meantime, it is fair to
renegotiate the price – but chipping for the sake of it really should be
discouraged.
We are also seeing an increase in second homes and holiday bolt holes coming
onto the market as the credit crunch bites. Popular seaside locations, where
properties have rarely come up for sale in the past, are becoming more
accessible (for some, anyway).
Auctions, too, can be a great source of bargains, especially now that sellers
are becoming more realistic about guide prices. Watch a few to get the hang
of things before you bid. Identify well in advance which lots you are
interested in, go on a viewing and consider ordering a survey. Don’t get
carried away: set a maximum limit and stick to it. Remember, you will have
to put down a 10% deposit on the spot, and typically have only 20 working
days to pay the rest.
5 Put the squeeze on the developers
With developers’ share prices falling through the floor, this can be a good
time to get a bargain on a new-build. Check out the development carefully:
there’s still plenty of scope for further falls, and there are lots of
lemons around.
Look for developers in financial difficulty. It sounds ruthless, but it works.
Development finance is agreed in tranches, with the next tranche available
only once a certain number of units are under offer. Buyers can use this to
their advantage at the moment, but stock selection remains key, and you
should only buy property that makes sense for you.
6 Get cashed up
If you have money, it is much easier to make more. The rich have been getting
richer, and this will continue. Chains are collapsing all the time as people
change their minds, personal situations alter and finance falls through. If
you are a cash buyer, you are in a strong position and can negotiate
aggressively on almost any property. Make sure you have an efficient
solicitor who can move quickly, too.
As with all investments, remember the golden rule – it’s the price you buy in
at that makes the difference.
Phil Spencer is CEO of the property-search company Garrington; 020 7376 6780, www.garrington.co.uk
