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Advice to first-time buyers and investors: don't do it
Mira Bar-Hillel, Property Correspondent28 Apr 2008
After the heady market conditions of last year - with its gazumping and 125 per cent mortgages - the spring downturn is starting to cause panic.
The market is facing gridlock because many sellers are being unrealistic about prices.
At the same time buyers are reluctant to commit to a market that they think - quite rightly - has further to fall. The result? A freeze. Houses are still going on sale at inflated prices but, in stark contrast to a year ago, no one is interested.
Prices are "slashed", but if they are reduced from a fictional original asking price the decreasing number of buyers will buy neither the "reduction" nor the house.
The result is a 40 per cent drop in property sales. So what should people do? As usual, it's horses for courses. For anyone who has no pressing need to sell, I would suggest not selling. Now is not the time to move house on a whim or to "test the market".
If you must sell, frequent reality checks are needed. If buyers are not biting, it can only be because your property is overpriced and no amount of wishful thinking or estate agent's jargon will change that. If you bought with a City bonus but now need to sell because your job is threatened by the credit squeeze, think very carefully.
There is a dearth of buyers out there and you must not delay the sale hoping someone will pay a larger price. Just find a buyer of some kind before prices fall further.
Anyone else facing redundancy or even repossession should make every effort to sell before the latter takes place. The experience of the early Nineties is that being repossessed is the worst possible option.
My advice to buyers - especially first-timers and investors - is much simpler: don't do it.
There can be no rational reason for buying anything, let alone the most expensive purchase of most people's lifetime, when the expert consensus is that it will lose at least 12 per cent of its value over the next two years.
This is also not the time for homeowners to move. The coming months - perhaps years - are likely to be quite stressful enough.
Reader views (10)
I sold my 2 bedroom house last June for £378,000 having bought it for £175,000 in 2000 on a multiple of salary at the time of 3.4. having saved a deposit of £22k over 4 years. I have never spent more than I earned or used my property as a cash dispenser. Talking to a colleague last year who had just borrowed 6 x salary to buy a tiny little 1 bed in Streatham for £220k with no deposit on an interest only basis it occurred to me that he was both mad and effectively renting his home from the bank. It seemed to me certain that a crash must now happen when even spendthrifts like my colleague are considered financially worthy. I hope that the crash is severe enough that once the dust settles I can buy a four bed house for not too much more than I sold my 2 bed place for last year.
First time buyers buying now are simply swapping their necks on the chopping block for someone financially ignorant. Best to wait. There's no point rushing to borrow tens or hundreds of thousands of pounds over the odds just to let someone else pay off their credit card debts.
- Jeremy, London SW19, 29/04/2008 16:04
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If anyone here thinks prices are not falling, check the online property auctions as they come and compare with the prices they went for in the past from the land registry etc. We are already seeing 30 - 50% of the peaks of Q1 last year. Check for yourselves!
- Mark Smith, London, 29/04/2008 15:32
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This is a bit late for many buyers who will now be trapped in negative equity.
The ES should have been publishing this information 2 and 3 years ago.
We are in rented accommodation and have been trapped here for years. Totally priced out of the market.
London homes were the subject of a bidding war between overseas investor.
The Government knew this and so did the financial press but nothing was said and nothing was done.
Many families were trapped in small flats, unable to have children and have been forced out of London and out of the UK.
Housing is a human rights issue but no one was prepared to stand up for the Londoners.
- Flopsy, London, 29/04/2008 14:32
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'And what of the fact that rents are currently rising by an average of 15%?' this is not fact. We have extensively researched rental market in e14/e16 and found it to be very soft. We eventually took a flat 14% lower than asking price. I agree with the sentiment of the article but I would warn anybody looking to buy a 2 bedroom flat: these will go down 60-80%, why? Have a look at what happens to all speculative bubbles when they burst. The prices we have witnessed over the last few year have not been based increase in real earnings, just on the biggest lending scandal we have ever seen.
- Radha, London, 29/04/2008 14:27
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Fair article. Of course, no one can say for certain that house prices are going to collapse, but clearly the risk of falls is much greater than it was a year ago and the risk of rises less. In such a situation the rational thing to do is not to buy unless one has to. If everyone does this, of course, demand will plummet in the short term and prices will fall. When people were convinced that prices would rise they stretched themselves as far as the lenders would let them, which was rational, to avoid property prices accelerating out of their reach. Which activity led to rises. The rises made buy to let attractive, which led to yet more rises. That's the way markets work, and why the historical house price graph will always show extreme swings rather than gentle "soft landings".
- Doug Wimbledon, London, UK, 29/04/2008 14:20
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This is exactly what I found and thought when trying to buy in Q1. Sellers and EAs are not realistic. I am now renting instead, all the houses we looked at are still for sale, some of them have been on/off the market for over 1 year now.
This is very good advice, but I would add buying doesn't need to be off the cards. For upgraders its better to sell first (before prices go down even more), rent for a bit and buy at your leisure (when they have gone down further). You can probably afford a much better place renting than owning until prices drop 50% or more.
FTBs should keep making offers at 20%-30% below asking and look for repos in auctions. There will be plenty soon enough. Don't expect >3.5x salary mortgage, and have a 10-15% deposit.
Check all the information available on the web for price history of the property you want to buy and aim for pre 2004 values maybe even earlier.
- Tony, Belfast, 29/04/2008 14:12
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Dan, where do you live? Cuckoo Land? 15% rent increase? You must be one of those buy-to-leters.
- Prash, London, 29/04/2008 13:50
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Good solid advice.
The UK housing market has become the biggest speculative bubble in living memory, and that bubble is now bursting.
Don't kid yourself that prices can settle back a few percent and then advance again - this is going to be a crash, and a very big one at that.
Take a reality check, do some calculations, try to calculate what level of house prices is genuinely sustainable - it's at least 40% below the highs of last summer..
- Tom Archer, Cambridge, 29/04/2008 13:45
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Dan W - estate agents know that prices in London have fallen 10-15% since the start of the year. The LR is 4-6 months behind the times. It relates to transactions of 2-3 months ago on prices agreed 2-3 months before the transaction. Are you trying to sell at a ridiculous price?
- Jonathan, Herts, 29/04/2008 10:36
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How does this headline-seeking advice fit with land registry data that showed in many London boroughs (though not all), property prices rose in the first quarter of 2008. And what of the fact that rents are currently rising by an average of 15%?
Is the correspondent seeking to buy a reduced price property themselves, perhaps?
- Dan W, London, 29/04/2008 07:09
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