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here for house price growth from April to October 2007
With less than three weeks to go before Christmas, buying a house is likely to
be low on most people’s list of priorities – especially in the current
climate. Prices are falling, buyers pulling out, repossessions rising. But,
despite all the gloomy predictions, could now be a good time to buy?
If the doom-mongers are correct, and this is the start of a slump similar to
that of the early 1990s, it’s probably best not to buy or trade up unless
you really have to. A report last month by Karen Ward, chief UK economist at
HSBC, said that British houses are overvalued by about 30% – which, if true,
would be cause to abandon all thoughts of moving home and concentrate on
Christmas presents instead.
But what if, as some commentators appear to believe, this is not a crash but a
minor correction, similar to that seen at the end of 2005? Then, annual
house-price growth was just 2.2% – down from 12.3% the previous year
–prompting speculation that the boom was over. Yet by the end of 2006, the
market was rising by a healthy 9.1% again. Anyone who jumped in then has
seen the value of their property soar – such as James Harvey, 32, and his
wife, Lucy, 36, who in January 2005 bought a three-bed Victorian terraced
house in Battersea for £650,000. They have just sold it for £950,000, and,
although they have not yet found another home, are pleased with their
profit. “We didn’t really want to move,” James says, “but I thought I’d
rather be homeless with a million quid in the bank than wait and watch it go
back down to £650,000.”
Either way, before plunging in, it is worth bearing in mind some tips:
Get personal:Take advantage of the lull to get closer attention from
agents. “There is less competition at this time of year,” says Tim Harriss,
a partner in the Guildford office of Knight Frank. Agents’ offices tend to
be quieter in December – especially this year – which means they will have
more time to spend with buyers, who can get to know the areas in which they
are interested really well.
Even if you don’t intend to buy immediately, it is worth looking. “It’s quite
easy to see what’s on the market at the moment, just by spending a bit of
time,” says Justin Marking, managing director of the search agent Prime
Purchase. “You can get advance warning of things coming on next spring, and
get first crack at them.” It is also the time to look if buying in the
country. “There won’t be any leaves on the trees, so, if there is road
noise, you’ll hear it now,” he says.
Drive a hard bargain: “There is nervousness about what’s going to
happen next year, so vendors are keen to get things tied up before
Christmas,” says Liam Bailey, head of research at Knight Frank. “If you have
people who put property on the market in September or August, and it’s still
unsold, you could well get a good deal.”
Try to distinguish between homes with prices under pressure because of market
sentiment and those with problems. “Ask fairly frank questions of the
selling agent,” Marking advises. “Look at the survey, do the due diligence.”
Don’t be loath to haggle: the seller is probably sitting on a tidy bit of
equity, and being equally tough with whom-ever they are buying from. “You
can be quite predatory,” Marking says. “Don’t be frightened, provided you
can perform quickly. Certainty and the speed with which contracts are
exchanged are more important than ever.”
Choose your area carefully: Do you take a chance or play it safe? For a
lower-risk investment, this could be your chance to buy in an area you
thought you couldn’t afford. In the last downturn, at the end of 2005,
prices in some of Britain’s most established areas were among the first to
fall, reveals Savills. Prices in Kensington and Chelsea fell first: by 0.21%
quarter on quarter between October and December 2004. In South
Gloucestershire, they fell by 1.76% between December 2004 and February 2005.
However, such prime areas bounced back faster. In the past two years,
Kensington and Chelsea has seen 54% growth: average prices rose from
£552,648 in December 2005 to £849,638 in October this year. The South
Gloucestershire market was up by 20%, from £170,052 to £204,912.
There are good reductions out there. Foxtons, for example, has a one-bed flat
on Eaton Place, in Belgravia, that has been on sale since September – its
price has fallen from £800,000 to £600,000 (0800 369 8667, www.foxtons.co.uk).
In Tetbury, Gloucestershire, Knight Frank has been trying to sell a five-bed
house since October; it is for sale at £975,000, down from £1.2m (020 7629
8171, www.knightfrank.co.uk).
Perhaps more risky is buying in areas that have been hardest hit. A map from
the Land Registry (see left) shows prices across swathes of the Midlands,
the northeast and west Wales have grown by 0%-4% in the past six months;
parts of the northwest, London and the southeast have seen more than 5%
growth.
Buy in a hard-hit area and you could make a huge saving: average prices in
Pembrokeshire, west Wales, for example, dropped from just over £182,500 in
July to just over £179,500 in September. On a local level, look at
undeveloped tertiary areas. The infrastructure may not be as good, and there
isn’t as much kudos associated with living in them, but they could be wise
places to buy.
“These areas are where you are going to get the most if you can predict that
investment is still going to happen,” says Paul Tabor, a partner at the
search agent Garrington Home Finders. He cites Elephant and Castle, in south
London,as a prime example. However poor the market conditions, it will be
developed, but buyers must be prepared to wait a little longer for this to
be reflected in popularity – and price. The biggest risk is that such areas
haven’t hit rock bottom. “The downturn could affect these properties for the
longest,” warns Lucian Cook, director of residential research at Savills.
Don’t confine your search to estate agents: Many potential
sellers wait until the new year until they market their homes, so the
pickings on offer may be slim. Sad as it may sound, the real bargains are to
be found in repossessions and other forced sales – and where better to look
than at auction?
Allsop, the auctioneer, is about to hold one of the largest residential sales
it has ever run: more than 400 properties will go under the hammer on
Tuesday at the Royal Garden Hotel, Kensington. “We’ve got some super stock
from very committed sellers,” says Gary Murphy, a partner and auctioneer at
the firm. Half the catalogue comes from mortgage lenders, and reserve prices
are 5%-10% lower than they were at the peak of the market earlier in the
year, he says.
It’s a similar story elsewhere. Phillips Smith & Dunn, based in
Devon, is auctioning two properties on December 14, and has seen less
interest than it would have done earlier this year. “In a stronger market,
you could get a flyer,” says Roger Berry, a partner in the firm, “but at the
moment, it’s not likely. People haven’t got the confidence to bid to that
level.”
Get to Barnstaple for the auction and you could pick up a two-bed holiday
bungalow, ripe for redevelopment, on the sand dunes in the pretty estuary
village of Instow. The guide price is just £125,000, although it is likely
to go for more. Many places sold at auction need work, so seek professional
advice before bidding. You must hand over 10% of the price on the day, and
normally have just 28 days to complete, so organise finances in advance.
Think about buying a new-build property: With the year-end approaching,
house builders desperate to shift stock are offering incentives to lure
buyers. At Zen Buildings, a scheme in Bolton, for example, Miller Homes is
offering 5% deposit, £500 towards legal fees and free carpets. If buyers
move in before Christmas, they will receive £500 in Trafford Centre
vouchers. In Leeds, Barratt Homes will pay 5% deposit for first-time buyers
on some flats and houses.
If no incentives are on offer, ask for them. “Now more than ever, you can
negotiate,” says David Bexon, managing director of SmartNewHomes.com, a
website dedicated to the new-build sector. He suggests pushing for at least
3%-4% off the price, plus any other goodies you can get thrown in.
But don’t get too carried away, and, in the case of temporary mortgage
subsidies, make sure you can afford to keep up your repayments when the deal
finishes. “You need to do some sort of scenario analysis,” Bexon says.
“Avoid offers of free holidays and cars like the plague – you’re not buying
a holiday or a car, you’re buying a house.” Remember that new-builds,
especially flats, have been one of the worst-performing sectors in recent
years, and there are serious gluts, especially in northern cities such as
Leeds and Manchester. Do your research carefully before jumping in.
Get organised: At this time of year, solicitors might not be as readily
available as you’d like, so make sure they won’t be away skiing at a crucial
point in negotiations. Line up your funding and, in the uncertain financial
climate, don’t be surprised if lenders change products at short notice.
“Some vendors will take a lower price if you’re prepared to move quickly,”
Marking says. But don’t lose sight of why you’re buying. “The rules remain
the same,” says Andrew Scott, a director in Strutt & Parker Lane
Fox’s Chelsea office. “Don’t take the short-term view, stick to the
essentials – location, proportion, view, noise. You need to fall in love
with a property. If you find it before Christmas, do it. If not, forget it.”
Why we won’t see another crash
In 1989, the Berlin Wall came down and the pop charts were dominated by
Madonna, Jive Bunny and Black Box. That year also saw the beginning of a
house-price crash that lasted until 1994. So, is history about to repeat
itself?
Unlikely, according to exclusive research for The Sunday Times by Lucian Cook,
director of research at Savills estate agents, who expects prices to start
going up again in the second half of next year and rise at an annual average
of 5% in the next five years. He identifies four key differences from two
decades ago:
1 At the end of 1989, interest rates were 15%, far higher than now;
they had risen by 76% from the start of 1988, which had a strong impact on
affordability. By contrast, rates are expected to fall to 5.25% next year.
2 At the end of 1988, average house prices in the UK were growing at an
unsustainable 32.9% a year; they peaked this year at a more modest 10.9% in
June (although they hit 28.9% in prime central London).
3 The economy was growing far more slowly in 1989, and moved into
recession at the start of the 1990s. By contrast, GDP is still growing,
although the rate of growth is expected to slow to 2.2% by the end of 2008.
4 House prices were far lower relative to wages in 1989, but net
household incomes now are roughly 6% more than basic expenditure (which
includes housing costs). In the third quarter of 1988, the same comparison
revealed a deficit of 10% – which rose to more than 30% by the end of 1989.
How about a house-buying strike. Only a fool would buy now in the falling market. Until the asking prices are back to real values, let's not buy. At all.
Peter Nichol, London,
It is falling, it is falling! At last. Hurrah!
Richard, Richmond,
Sorry Lucy, but the impartial comments below make far more interesting and authoratrive reading than your spamy article.
matt smith, monaco,
Asking an estate agent whether house prices will crash is like asking turkeys about Christmas.
Sorry, but some sort of correction is inevitable.
Jon, Cardiff,
Those predicting a house price crash, I'm curious to know how much you have bet on it, theres an article on spread betting on falling house prices.
Dominic, Manchester, UK
I would suggest Gordon is NOT responsible for the Low prices on LCD tvs. that is down to them being mfr in China out of dead Kangaroos and Boiled lead. Yes estate Agent says prices to rise, def trust him then!
Ronny, london, uk
I agree with Jon of Bristol to a certain extent , but would stop short of calling people with the differing view idiots.
The logical explanation would be:-
1) At this moment in time house prices are on the way down and will continue untill something changes the downward trend. (Plus factor for new buyers, but only when prices have bottomed at -30% as the HSBC says. Or prices stagnent for 10years X 3% inflation, which will also have the same overall effect.
2) Interest rates are falling, which would make homes more affordable. (plus factor)
3) Mortgages are obtainable at the present times of the global credit crunch if you have a very good credit record and a well paid job. (minus factor)
4) The private/commercial rental sector provide most homes for rent as councills no longer provide new council housing. (minus factor)
5) Energy and food prices are increasing at an average rate of 20% per year. (minus factor)
So you see with only one plus we stale mate for now!
Mr Moore, gosport, uk/Hants
Couldn't even be bothred to read such rubbish. Now, Savill's Private Finance -don't thet sell mortgages? Well, there's a surprise, house prices to rise!
You can go on until you are blue in the face, SPF, but it isn't that difficult (and you should know, you sell mortgages). House prices are between 7 and 10 times the average annual salary (depending on who you believe) - never, ever have they been anywhere near approaching this kind of mark.
Prices have been pumped up by ridiculously lax lending standards (SPF should know - they sell mortgages) and know only to well that this is now coming to an abrupt halt. Who is going to lend the 7x to 10x's mortgages now required?
No finance, no house purchase - not at these levels anyway!! It isn't different this time, either - it never is!!
Rob, Isle of Wight,
Exclusive research from "Savills"'. Not a vested interest there then. The words Lazy, biased and desperation come to mind!
The average salary in the UK is approx ₤22,000 according to the ONS. The long term trend in multiple for Salary to Mortgage is 3.5:1. The average home value in the UK is somewhere upwards of ₤180K depending on survey of choice. This means the average salary needs to be somewhere upwards of ₤50K, somethings not quite right here then mmmmm.
We are also borrowing 3 times as much as in 1989. So 5% interest on todays mortgage is costs exactly the same as 15% on 1989. It appears the average Times reader has better maths skills than a certain Mr L Cook!
Grant, Edinburgh, Scotland
Moronic.
Chris, London,
yes, now is the time to pile into the housing market... don't listen to the economists etc., listen to the opinions of the estate agents, mortgage brokers and mortgage providers who all have a vested interest in trying to prop up the market.
and remember, the best economic forecasts have always come from estate agents, not from economists.
Hugh, London,
All of you 'waiting for the crash' have forgotten one thing. If there is a crash (and there won't be) then who do you think you're going to be able to get your borrowing from?
Do you think any lender in their right mind will lend you 4, 5 or 6 times your income with the possibility of house prices coming down further? Lenders tighten up their criteria when house prices come down and it gets harder and harder to get lending, until only those with substantial deposits will be able to get on the ladder.
Similarly there are thousands of you waiting for this crash. When you all flood back on to the market in your droves, what do you think will happen? Demand will shoot up, prices will shoot up and we'll be back to square one.
There is without doubt going to be a slowdown or even a small decrease, but those of you waiting for a crash are simply going to be disappointed.
Daniel, London,
Dont catch a falling knife........
Chris, Bedford,
I sincerely hope any one punting house-buying at the moment is sued into the ground when the crash happens.
Bruce Robertson, Brighton, UK
I am not an economist, just a simple scientist. I calculated the value of my rented house by assuming the buyer had a 15K deposit, then adding a mortgage with a monthly payment equal to the monthly rent I was charging. The value was around 30% less than the appraised value so I sold it in July (ironically to another BTL).
The only question for the UK now is how far prices will fall now that the mortgage market will have to drop the more ridiculous products, such as 6 times salary.
My estimate is an average of 30 %, with over 40% in the South.
Steve Edmondson, Oakville, Canada
What sort of advice is this???...
"The market’s in trouble, prices are falling ... but it might be the perfect moment to buy"......
so you want your readers to go buy in the midst of falling prices ..so that when the prices have further fallen to their lowest ....they'll have made a tidy loss!!!!
incredibile !!
Carly, London
Carly, london,
I remember these kind of wishful arguments when I was Finance Director for a housebuilder in 1990.
House prices are all about affordability. Demand will always drive prices up to peoples maximum afforability as long as it outstrips supply.
It doesnt matter that some people cant afford houses as long as enough can.
Geoff M, Bromsgrove, England
This article is rubbish. A bargin is something undervalued compaired to the market. A year from now anyone paying these so called bargain prices will be 20% underwater.
John Miller, London SE1,
The important factor in 1989 -1993 was the rise in unemployment.
A substancial number of jobs created in the last 10 years have been unnecessary Public Sector jobs.
Household income has been financed by the governemnt in the form of Tax Credits and by available credit.
Companies profits are falling and hence Corporation Tax revenue for the government will fall.
Consumers have had to reduce retail spending due to increase in interest and hence mortgage repayments, utility bills, council tax etc. The available credit is also drying up, therefore less retail purchases and therefore less VAT revenue for the government.
The result will be that the government needs to increase tax or reduce the public sector workers to reduce the tax deficit.
Reduction of public sector workers results in unemployment benefit payments and no PAYE/NI deduction revenue.
If taxes go up, redundancies in the Private Sector go up as consumers cannot afford to buy as much.
Go to top and repeat.
John, Kings Langley,
Anyone who thinks that a housing market growing at an anualised rate of 9.1% is healthy is off their trolley. Increases in line with the growth rate of earnings is the only sustainable rate on a long term basis and we have already had years of growth in house prices way above this level. High house price growth rates are distinctly unhealthy as it typically indicates rampant debt accumulation in society, not increased wealth in society as a whole. If we have another period of rapidly rising prices stoked by a foolish BoE dropping rates down again to low levels, the levels of debt in this country are going to start to present very serious problems for the country and the stability of the housing market itself going forward.
J Barrows, Newcastle,
Mmmmmm, six times salary for somewhere only half decent when you're well into the higher tax band? I don't think so. Buying now is just propping up the house "share price" of idiots who've plunged into this dot com like boom. Personally, I'll wait for the shake out in six to 18 months time when the overly stupied can't get credit any more, can't re-mortgage and can't get any takers to rent or buy their overpriced boxes. Up and coming, in demand Bristol is FULL of overpriced flats that can't be sold and can't be rented because they're overpriced. There's simply a surplus, supply has exceeded demand.
Face reality Lucy, the market's about to plummet and all the optimism in the world ain't going to stop it. My advice : Keep renting or stick with your parents for a bit longer, THEN you can pick up a bargain when those idiots who think "Property prices ALWAYS go up" can't afford to fund their mortgages any more.
Jon Guard, Bristol, UK
B Cook, You are absolutely right, I am an FTB following the market closely. Each article I have read up to now has some smell of vested interest. Even more surprisingly some boards remove comments like ours. Try to post something about vested interest on the channel4 forums and see what happens.
My advice for anyone wanting to buy.
Research, research, research!
and
Don't get into something you cannot afford
Ogotai, London,
Four key differences ??
1.Rates lower yes but huge mortgages needed so ultimately no difference.
2. 10.9% and as you admit 28.9% in London is unsustainable...so no difference.
3. I and many believe we are moving into a recession so no difference...
4.Many basic necessities are not accounted for in inflation figures including housing costs (convenient) so no difference where does the figure of 6% come from uh?? mortgages alobne are swallowing huge amounts of peoples income,many are just keeping their heads above water.
G Reeves, Birmingham, UK
Here's a tip. Don't use someone with a vested interest in ramping the property market to do your 'exclusive research'. Makes it look as if you couldn't be bothered getting someone neutral.
In answer to Lucian's points:
1. Rates are lower but mortgages are higher. Result? We owe more, we are paying more, it costs more to service the debt. Get it?
2. 10%+ each year IS unsustainable. First time buyers are priced out, buy to let has replaced them - but for how long?
3. The economy has be rapidly expanding, yay! The UK has more debt than the GDP, boo! Borrowing from the future only works for a short period.
4. Petrol, food, school fees, haircuts - EVERYTHING is more expensive now than a year ago (except for flat screen TVs, thanks Gordon).
Finally, 600k for a 1 bed flat is NOT a bargain. The fact you present it as such is indicative of how stupid this property pyramid scheme has become.
Bring on USA recession, bring on a dose of reality here.
B Cooke, London,