click this button to get back to the previous page
NICHOLAS PINE’S HOT PROPERTY
Oh dear…
Well! In my 60 years on the planet I have never seen anything like the property market in May and June of this year. The market fell further and faster than anyone thought possible, except perhaps me. Estate agents reported sales down by some 30% in the last month and the market itself seems to be falling like a stone.
The main driver of house prices remains affordability. If people can afford to borrow the money, they will do so and prices will rise. Some two-thirds of all mortgage products have been withdrawn over the year and interest rates have gone up and look like rising still further: this can only exacerbate the market fall. This is the worse slump since the early 1970s and it could well be the worst since the 1930s.
There is no doubt it will be worse here than in the US because this country is singularly unprepared for it. It gives me no pleasure to say it (Oh go on, you know it does – Ed) but every Labour government we have had has bankrupted the country before being kicked out for normally 13 or 18 years. The same will happen again in two years’ time, but meanwhile the country will be on its knees.
The sub-prime mortgage debacle appears to be bottoming out in the US but here the slump started later and is getting rapidly worse.
Therefore, the advice must be: don’t buy any property; wait for the slump to bottom out. I did say I would tell you this month how to buy at the bottom, what to buy and where and I might even know when but I am not even going to venture into this territory yet because the roller coaster is still going down.
Let’s take a look at last month’s auction results. The percentage of sales continued to fall, with most auctioneers selling between 60% and 70% of lots as opposed to the norm of 80–90%, and that’s only because they have forced vendors to accept more realistic reserves. The days of being able to obtain a good auction price are over.
The auction market has been hit along with the general market, and reserve prices will continue to be marked down until the bottom is reached. We read dreadful stories about the market and reports from surveyors, banks and building societies moaning about how bad the market is, and it becomes a self-fulfilling prophecy as people read these dire forecasts and sit on their hands. Estate agents remain fairly clueless. For example, in March 2008 leading agents Savills forecast that the market would rise 14% this year at best and 4% at worst. They are about to publish a new forecast predicting price falls of as much as 10% in 2008 with another 10% in 2009. The market has already gone down 10% this year and looks like going down 20%, as I said several months ago. This really is serious.
Buy-to-let mortgages are tightening up considerably. Most lenders will only lend 70% LTV (loan to value) and require 130% rental cover. Where mortgages fall below this, they are asking that the rent be increased or they be topped up. Many tenants are now missing rent and landlords are missing mortgage payments.
So I forecast that during the next six months a deluge of residential investment property will come on the market. Already, auctions are stuffed with them and few are selling. Take a look but be cautious, as the market has not yet bottomed out.
Let me just take you through what an estate agent tells me happens when a building society forecloses on a flat. It obtains three prices from the estate agents. It normally takes the highest one, which is more than likely an over-valuation in order to get the business. The agent markets the property for a couple of months and then advises the building society to reduce the price, which it does. The property still doesn’t sell as the market has moved down further, whereas if it had taken the advice of the lowest-priced agent, who is more likely than not an independent and has a truer feel for the market, it would more likely have sold immediately. However, they are charged with obtaining a best price and now the flat is entered into auction. The reserve is too high and it doesn’t sell. The reserve is lowered next month and it does sell. All this takes about six months, during which time the property will actually sell for approximately £50,000 less than at the start. You can see this story replicated all over the country. If you go to auction and see a property you like which doesn’t meet the reserve, watch out for it reappearing the following month, undoubtedly at a lower reserve.
See you again in September, and remember: keep the chequebook firmly to the back of the bureau.
Nicholas Pine