Who is brave enough to tackle the current market?

< back to list       next>

20 March 2009

With many market players sidelined either through injury or suspended for foul play, who is left to capitalise on weakened defences?

With new buyer enquiries rising at their fastest pace since August 2006 but with transaction volumes remaining low, according to RICS February Market Review, it appears that potential buyers are keen but still waiting for a tipping point in confidence before re-entering the market. Click here to read more

While we wait to see how and when this tipping point occurs (be it real economic improvement, consumer confidence, media coverage etc) it is worth considering those who are currently making the plays.

While still well below previous years' levels of activity Rettie & Co. has been pleased to see not only an upturn in buyer enquiries but also in transactions; including the return of the competitive closing dates, an absent friend of late. Over the first three months of the years we have seen monthly improvements on sales volumes and increasing numbers of buyers looking to act now rather than 'at some stage this year'.

As would be expected the majority of these purchasers are traditional owner occupiers with almost ¾ of all sales in this category. However, there has also been a significant proportion of investor and second home purchases. This is notable as these purchases are usually discretionary and as such occur when both property and price are deemed to be attractive.

What we have seen this year is that all sales have been to buyers who are not dependant on selling their own property and not affected by the tightening of lending criteria.

Financial independence is currently the key that unlocks a buyer's abilities to take advantage of the current market downturn. Being aloof to the troubles facing many buyers affords the cash rich to play hard against a limited opposition.

It is perhaps unsurprising that a higher equity requirement plays into the hands of the more established and mature buyer, with deeper cash reserves.

To this end we have seen buyers over 40 years old dominate almost 85% of our transactions with many younger buyers being dependant on equity gained from house price growth rather than sustained savings. As house prices have retreated and equity requirements have increased it has been liquid wealth that has come into play, as theoretic asset-bubble based wealth has not only dropped in value, but in many cases can't be realised.

What has also been interesting over this period, has been market expectations. The graph below shows the gap between the sought price and the final sale price.

As the year has progressed buyers and sellers expectations have closed. This has largely been due to sellers moderating prices inline with market retreat and narrowing some of the gulf that prevented transactions.

While the gap between buyer and seller has narrowed in some cases, leading to transactions, it should be emphasised that a key to completing deals in this market has been the renaissance of negotiation. With many deals requiring protracted negotiations it has been a combination of pack tenacity with deft backline handling that has led to positive results.

The Importance of First Time Buyers

While many buyers are apprehensively staying in base camp there are others who are willing but unable to enter the market - namely First Time Buyers. Previously usurped by buy-to-let investors they are now disenfranchised by stricter lending criteria and higher deposit requirements.

We are all familiar with the liquidity issues facing many prospective buyers but even once this eases it is still likely that there will still be a higher capital requirement for many sectors of the market. Lack of activity in any sector can lead to chains preventing efficient market function. Therefore even if market conditions improve unless first time buyers can participate we may see a number of chains attached to FTB anchor.

So what is the solution for FTBs?

Rics have released a policy paper calling of the introduction of HomeBuy ISA to aid buyers trying to save for a home by allowing tax free contributions from the government and the bank of mum & dad to supplement individual savings.

In Australia they have the First Home Grant, introduced in 2000, which has recently been tripled to A$21,000 until June 2009. This has seen a doubling in uptake in December on the previous month.

In the UK new build market there are numerous schemes such as shared equity, rent to buy and FTB specific incentives aimed at helping with deposit requirements. These schemes can assist those currently struggling to qualify for traditional lending.

If the government is set on preventing further pain in the housing market it seems logical that some help should be targeted at getting the bottom end of the market active, whether this is through grants or tax breaks, without over burdening them with excessive debt through high LTV.

With the property ladder turning into more of an ice climb, first time buyers should be considered less of deadweight to be dragged along but more of a trusty Sherpa that deserves at least a length of rope and a pair of crampons as ultimately they will help us in our own journey. 

The Turner Report

Closely related to the issue of the first time buyer is the release of the Turner Report which looks at banking sector regulation. This has once again highlighted the role that excessive lending played in our current predicament. Part of this report has raised the possibility of capped lending based on salary multiples as a way of preventing over leveraging. While this may be an overly simplistic solution what is important to take away from these ongoing discussions is the possibility, nay probability, that government legislation is going to alter the way in which the market operates in future.

To read the full report click here

Home Reports Follow Up

Optimism was buoyed this week by what appeared to be another successful and competitive closing date, too rare an occurrence in the recent times. However, our enthusiasm was short lived as the buyer's lender subsequently refused to accept the home report value for lending purposes. As mentioned last week this has been an issue already faced by others in the market place, but was our first experience of said problem. As transaction volumes increase and competition returns to the market place it may well be the case that this becomes an increasingly frequent occurrence and will have to closely managed to ensure deals complete.

Chainmaker Equity

Perthshire based home builders A & J Stephen have released their Chainmaker Equity scheme designed to unlock buying chains. The scheme works by them taking a '15% share in the value of your home along with the buyer.' This is aimed to reduce the price payable by the buyer and counts toward the deposit, making it easier to obtain mortgage finance.

Bank Notes

After nervous waiting, it has been of some relief to hear the announcement that only 260 of the 2,700 RBS jobs being cut in the UK will be in Scotland (a figure not that much above the 200 new jobs being created by Tesco Finance).

Google Maps Street View goes live for Edinburgh and Glasgow

Contact Us

If you have any questions, would like any further information regarding the above content or would like to discuss how the Rettie & Co. Consultancy & Research Team can help your business, please do not hesitate to contact:

Andrew Meehan

Researcher

t: 0131 624 9051

e: andrew@rettie.co.uk

Rettie & Co Ltd. Registered in Scotland No SC144330.

Registered Office Deuchrie, Dunbar, East Lothian, EH42 1TG.

VAT Reg. No. 593 2816 16

Terms & Conditions :: Privacy Policy :: Site Map :: Login :: mail@rettie.co.uk