Following the recent publication of the RICS report that house prices were falling in certain pockets of the UK, our South East based firm has certainly seen evidence of this in our immediate geographical area over the last 2 to 3 months.
Prices of the £2,000,000.00 properties in London and the South East have been slipping backwards since the SDLT changes introduced in November 2014 that took effect in December of that year. Although benefitting the vast number of property buyers, the higher valued properties took a severe hit with huge price adjustments being requested and in many cases given by sellers. Many such properties have taken years to sell and then at a hugely reduced price. Slowly but surely this has rippled out to others sectors in the market as many people selling the more expensive properties do so to downsize so reducing their buying power.
The lower end of the market was also affected by SDLT changes introduced in the 2015 Autumn budget that applied to buyers purchasing a second property. The new rules introduced a 3% stamp duty surcharge applying on certain properties, subject to various conditons, after 31st March 2016. A flurry of buy to let purchases was followed by an immediate dramatic downturn in these types of purchases that has never recovered.
Arguably this effect is exactly what the government require to stem the year on year rises without affecting the Treasury’s income as, at the lower end, properties will slowly become more affordable to the younger generation.
As solicitors we do have our fingers on the pulse as sellers who lose a buyer for one reason or another in a bear market then resell at a lower price. Estate agents who work very much on a rapid turnover basis are not always reluctant in advising sellers to lower the sale price or accept a buyers reduced offer as the net effect on their % based commission is marginal. As soon as buyers sense a struggling market by seeing the online estate agents sites that highlight those properties with price reductions the market begins to be really affected. Another sign of market forces changing is from surveyors down valuing properties at the time of carrying out structural surveys or lenders valuers doing so when valuing for mortgage purposes. This is implied in the RICS report.
Ultimately a property is a commodity and if person A believes it is worth £450,000.00, for example, why should a seller be affected by a lower valuation from a surveyor (who may not have liked the colour of the front door) that results in a subsequent price reduction request by the buyer?
Furthermore some estate agents are renown for over-valuing properties when asked to visit by intending sellers in order to capture the business with more accurate price guides from their competitors paling by comparison. The effect is that the property is initially advertised at the high price and then has to be brought down in price because there are few, if any, viewings.
There are other external factors such as Brexit that have an unknown impact, which may well be a complete phantom, but which are still a reason trotted out by many for a sluggish market.
We are currently in a market in the South East where all these factors are applying so having a negative effect on prices.
However many of the expert analysts were pontificating in 2009 that house prices would never again reach the heady heights at the top of the market in 2007. This proved massively inaccurate as prices shot past and continued to travel upwards from 2011 for 5 years.
The speed with which news, information and data now travels round the world will probably see us experience a property market that has more frequent highs and lows than has previously been the case. Only when we have a vastly increased housing stock will we have a property market that is stable for a longer period of time.
As stated by Hart Brown last week, just ahead of the recent interest rate rise, there are a number of factors present now that were present in 2008 which acted as a catalyst for the property crash so perhaps we are not just facing a small and limited slump.
This is not legal advice; it is intended to provide information of general interest about current legal issues.