A guide to surviving a plummeting property market
We are now in a situation that is worse than 2008.
In this article, I intend to tell you the ugly truth, the facts that most Estate Agents will not tell you. All I can do, is to tell you how things stand in my opinion, forewarned is forearmed.
The damage to our pound, the credibility of our government and in turn, the housing market, has already happened, the question that most of you are asking me, is what you should do now. So here goes:
If you are buying a new-build home and you have not yet exchanged, I strongly urge you to withdraw now! They are already overpriced and if you are buying at 85% LTV (loan to value) or higher, the chances are that you will be in negative equity within the year.
If you are buying any property at 85% LTV or higher……….consider your position carefully, What if? Rates do continue on their present path? Property will indeed fall much further and once again, you may find yourselves in negative equity?
Do not buy now with a 2 year fixed, only buy with a 5 year fixed mortgage as a minimum. We do not know where the mortgage market will be in two years and if you are buying now, your deal could end at the wrong time, you need to know where you stand for five years, so you can budget.
If you have a decision in principle, your purchase may not happen, it is likely that lenders will not honour them and most surveyors will down-value properties in the immediate future anyway, for buyers, that is not a bad thing, it may just protect your from your enthusiasm to purchase a property at price point that is just too high!
Despite the rhetoric about the volume of sales, more than half of existing agreed sales will fall down, either due to down-valuing or buyers pulling out. If you are determined to buy, or need to buy, consider offering around 25% below the asking price as it stands today.
Property falls immediately, it is the owners accepting the fall that takes time to filter through. Ignore statistics they are not based on what is happening today, they are based on figures from weeks or months ago…
Fight of flight?
if you decide to sell, be realistic and drastic with your asking price, you may feel that you are losing money, but that lower offer may be more than your home will be worth in 12 months time. If you hesitate in reducing your price, you may be ‘chasing the fall’ with your asking price falling, but still higher than the falling value.
Use a good agent, avoid the double glazing salesmen of property. Good agents promote their properties, bad agents promote themselves. Avoid the ones who are all over social-media telling you how wonderful they are, how many properties they have sold, or how they achieved a figure in excess of the asking price, over the last two years, the UK has been in the midst of a ‘buying Frenzy’ it was not down to agents selling, it was down to eager buyers snapping up everything they could find.
DO NOT sign a ‘sole selling rights ‘ agreement! No matter what the agent promises, once you sign, they have got you for months and months, if you want or need to take a lower cash offer, the agent will pursue you for their fee, a good agent will be happy to earn their fee on merit, not by extortion. If you commit to one agent with ‘sole selling rights’ it may transpire that further down the line, you find a buyer yourselves, a friend, a member of family or an investor, in that event, you will not be able to sell without paying that agent their fee for doing NOTHING!
Take the Estate Agent challenge, pop in to town and visit a few Estate Agents, ask about the market and sales, many will tell you that they have had lots of sales agreed this week, thanks to the stamp duty holiday and pent up demand, of course they have, that is only down to eager sellers accepting any offer they get before it is too late, most of those sales will not happen.
This is when I quote one of my favourite politicians, Tony Benn was a colourful and well spoken MP, although I did not always agree with him, I still love to quote his most famous words:
“There are three types of lies, lies, damned lies and statistics!”
If you have bought within the last 4/5 years at 85% LTV or more, you will probably be in negative equity within 12 months. Many of those who bought new build with a minimal deposit are probably already in negative equity.
If you have done your sums and decide to stay put, be drastic with your finances.
There are over 2.2m variable mortgages, will feel the pinch already, as they are vulnerable to the market as it moves, but there are also 1.8M fixed rate mortgages due to end over the next year, sadly most of them will be in a very difficult position.
Lenders do not want repossessions
If you are on a repayment mortgage, contact your lenders immediately and ask to be moved to an interest only mortgage, that will help to ease the strain. You may not pay anything off your mortgage over the next two or three years (although inflation will erode a big chunk) but at least you have more chance to survive and keep your home.
Consider renting out a spare room, you are allowed £7,500 per year tax free.
Finally, I am prepared to step out on to the parapet and say, “in my opinion, based on the current trajectory, property will fall between 30/35% within a year, from now and it has already fallen, London has had a drop of 10.4% in the last 2 months.