I was reading about the 10% surge in house prices in London in the month of October alone! This can’t be right, can it? Yet, the stories I am hearing from my Estate Agent friends and my clients looking to buy substantiates this very worrying truth.
I heard a story where a two bedroom flat in Forest Hill sold for £325,000 in June. Three months later, the buyer pulled out of the sale and the flat went back on the market. The Estate Agent reckoned it would now sell for a lot more and put it back on the market with a “guide price” of £375,000. Thirty people viewed the flat on its open day one Saturday afternoon. There were ten blind offers and the flat eventually sold for £435,000!
If you are renting: It is frequently pointed out that in countries such as France and Germany, the private-rented sector is much larger and many people there are happy to spend their whole lives as tenants. In Britain, however, there appears to be a great deal of resistance to this idea, with cash spent on rent often described as “money down the drain”. With house prices in London reaching stratospheric levels, renting may be the cheapest and most sensible option. If however determined to get on the property ladder, the sooner you start planning, the better.
If you are a first time buyer
Hearing stories like the one above must be very distressing if you are looking to get onto the property ladder in the South East for the first time. So what do you do? Sit tight and wait for property prices to crash? You may be waiting a very long time! The first question you should ask yourself is why you are buying. If it is to make a short term killing, then you are looking at a high risk strategy. If however you are buying your home for the long term and the mortgage is affordable, there is no benefit to be had in waiting – even if it feels like you are buying at the top of the market.
If you are moving house
You are likely to be making a tidy profit of you are selling. Sadly, if you are looking to continue living in London, your profit would most likely be cancelled out by the price rise of the property you are buying. The only real winners are those looking to sell and move out of London. Even then, once you are out of London, coming back could be difficult or impossible, as London is well ahead of most of the UK when it comes to price increases.
If you are staying put
Bask in the knowledge that you may have been making money on your home whilst doing nothing at all! If you have a mortgage, the all-important loan to value position would have improved, meaning improved borrowing prospects and better potential interest rates. Many people who were in negative equity positions (where the value of your home is with less than your mortgage) shortly after the credit crunch would now find themselves with real equity in their homes. For those staying put, it’s nothing but good news.
If you are buying for investment
This can work in all sorts of market conditions as long as you do your homework and get the maths right. Purchasing the wrong property could cost you a fortune so make sure it “washes its face”! By that, I mean this: Is it likely to be rented constantly throughout the year? Will the rent cover the mortgage and associated bills? Will it remain affordable if interest rates rise? Could you afford the mortgage with no rent coming in?
The rise in prices seems relentless at the moment and is set to continue as long as demand continues to outstrip supply.