The property market in 2009

The property market in 2009

BuyAssociation.co.uk Property Editor Paul Collins looks at what is in store for the property market in 2009, and finds the first signs of some green shoots of hope.

Introduction

This year is a time for optimism in the housing market. You won’t hear many people immediately agreeing with this statement, but take a look at what is happening in the property market at the moment, and there are reasons to believe that before the end of this year there will be signs of recovery, and even of growth.

But let’s make no mistake about it; the property market has taken something of a beating in the past six months. With prices falling, house builders revealing ever more worrying financial forecasts and banks making it harder than ever for potential buyers to get a mortgage, it has become difficult to see a way out of the current downward cycle.

While making concrete predictions as to the direction and behaviour of the UK property market has become something of a dangerous occupation, we have picked out below some trends to look out for in the next 12 months, and how to prepare for market, whatever your situation.

New-build bargains – but not forever

One of the defining moments of 2008 was the period of two or three weeks in late summer when all of the major UK house builders issued depressing figures for sales and profit warnings. At that point, house prices for both new-build and resale properties began to fall at a faster rate and a degree of panic set it to the market.

One of the other consequences of this is that most developers laid off large numbers of staff and mothballed new projects, concentrating instead on finishing the developments that had already been partially built. Therefore their efforts have been concentrated on selling the remaining units on the developments that may have already been on the market for some time.

One final factor is making the case for getting a good deal on new-build properties – sales targets. As house builders approach the end of their financial year, they will be scrabbling to make up on sales that they have missed out on through 2008, in order to get closer to the targets they were set this time last year. Almost all predictions for the property market last year were more optimistic than how things turned out in reality, so sales targets are likely to have been quite high.

Putting all of this together – the fact that developers may be down to the last few units on a development and need to boost their sales figures – means that for those who have finance in place and who are prepared to haggle there should be some great deals available on new developments at the beginning of 2009.

After April however, prices may return to a level closer to what they were a year ago as sales targets are revised downwards for the coming year and if demand for property begins to pick up again.

A stronger second half?

Most experts in the UK property industry are in agreement that the level of buyer interest has risen in recent months. The Royal Institution of Chartered Surveyors (RICS) has stated that ‘buyer interest is now at levels not seen since 2006’. However, transactions remain at the lowest levels on record, and the market remains in torpor.

Lending is the key to getting the property market moving again. While it is difficult to imagine that there are queues of eager buyers just chomping at the bit and waiting for their mortgage offer to drop through the letterbox to rush out and buy a property, there is no doubt that without a relaxation in the lending criteria that the banks are currently imposing, there is little hope of a recovery in property. As RICS puts it, ‘without mortgage finance, the housing market is at a standstill and transaction levels at an all-time low.’

Despite repeated cuts, and a base rate now at the lowest level ever in the 300-year history of the Bank of England, mortgage lenders are still not lending at anything close to the levels they were in 2007. This is the marker which the government laid down as a condition of injecting huge sums into the banking sector.

However, there is still a shortage of new homes in the UK, particularly in the South East, and with developers having mothballed new sites and laid off large percentages of their staff, there will be a period between the market beginning to pick up and supply catching up to new demand. Prices will likely rise sharply here, but we must be careful not to cause a spike and a subsequent yo-yo of prices as the supply and demand of property struggle to find a balance.

An overseas influx

Some parts of the London property market are beginning to see the effects of the strength of the Euro against Sterling, with overseas buyers coming over to buy property that has suddenly become much cheaper. As the two currencies neared parity around the turn of the year, overseas buyers were finding that properties were up to 40 per cent cheaper to them than a year ago. Added to any price reductions that sellers under pressure have already implemented to try to sell quickly, there are bargains for Euro buyers right across the city.

Of course, a favourable exchange rate has been behind many British buyers heading overseas in search of property at a knockdown price, so it should come as little surprise when the same tactics are used to invest in the UK. The effects of this could be to push up prices in some desirable areas immediately, while other parts of the country could begin to attract overseas buyers looking for that unique British property experience. One high-profile example of this is a property in Connaught Square in Bayswater, which has just sold for £4.3million. Tony Blair bought a property described as virtually identical in the same square in 2004 for £3.65million.

There are two things to watch out for here from the experiences of the countries in which British buyers have flocked in recent years. Firstly, that an influx of foreign buyers can kick start the property market, but can also raise prices faster than the wages of those who live in the country, who are then unable to afford to buy themselves. Secondly, this type of buyer is fickle in most cases, and will soon look towards a different market if they feel they will get better value elsewhere.

Strong rental performance

There is some good news for those who did take the plunge in recent years to build a portfolio of buy-to-let properties. Added to the reductions in the base rate of interest, which most lenders have passed on at least in part to their customers, the prospects for the rental market remain strong.

As mortgage finance continues to be scarce at best, and non-existent at worst, potential new buyers will be forced to hold off on plans to buy until the situation eases. However, landlords should not be expecting to be able to boost their own incomes by raising rents in 2009. While demand for property to let will remain strong for the most part of the year, the continued oversupply of rentals will mean that rents will remain static, and in severe cases, may be forced down.

Another aspect of the credit crunch is the restriction people will place on their own luxuries for the foreseeable future. Despite the huge discounts that will be offered by travel companies, there is predicted to be a big rise in the number of families choosing to remain in the UK for their holidays this year. These so-called ‘staycations’ should provide a boost in rentals for those who own property in holiday regions, with the prospect of repeat visits that could last for years to come.

Creative moving

While the recession makes many people sit back and try to ride out the storm, others are still just as keen to move house. This could be for reasons of work, family or relocation; or could just be a burning desire for a change of scenery. While the traditional routes of buying and selling are proving unreliable in the current climate, those still keen to move will be looking at more innovative ways to make it happen.

One of the most obvious is that people will see an opportunity to sell their property on their own, without using an agent. While this has its own pitfalls and obstacles to overcome, the fees saved allow a degree more flexibility in price. Many people also feel that there is no-one better placed to put across the advantages of their own property than they are. Doubtless, some sellers will be stung by the sheer amount of work it takes to sell a property and will be unprepared for taking enquiries, organizing viewings and negotiating prices, but others will find it a liberating and positive experience. And you never know, you might be able to show the agents a thing or two about how it is done!

Another way for buyers and sellers to be creative in their transactions is to take part in home swapping. This is as simple as it sounds, and has been growing in popularity over the past year. As swapping homes means there is little or no need for mortgage finance, and less paperwork and lower legal costs to be incurred, many people find it a more relaxed and civilized way of moving. The range of properties available means that people can swap from different sides of the country or from different sides of the same street. There are even swaps available for people looking to downsize or find a bigger property, with the ability to agree fees to make up any difference in value as agreed between parties.

Renovate, not relocate

Of course, you may prefer not to dip you toes in the waters of the property market at all in 2009, but rather to refresh, extend or renovate what you already have. This year will see large numbers of people making sure they are making the most of the property they already own.

This could be in the form of simply redecorating rooms and refreshing the exterior of the property; adding a loft extension, garden room, home office or extension; or taking a new look at the interior design and layout. All of these alterations should be carefully considered both from the point of view of everyday use and practicality; and for the value that they will add to the property when you do come to sell.

In addition, a well thought-out and considered approach to redesigning any part of your property will put it above others that are similar on the market when you do decide to sell, putting you in pole position to achieve the best possible price.