By Carla Passino
Despite tight credit lines and limited stock, buyers have the upper hand in today’s falling market, but only some can take advantage, says Carla Passino
Buyers with cash in hand are in the best position to take advantage of the current climate. ‘Vendors are more likely to accept a lower offer on their property from a cash buyer than a higher one that’s subject to obtaining a mortgage,’ says Camilla Dell of London buying agency Black Brick Property Solutions. ‘Cash buyers are king.’
This is especially true if your cash is in a foreign currency. Savills calculated that between September 2007 and January 2009, the average cost of prime central London property dropped by 42% for Euro buyers and 43% for dollar ones. Miss Dell says that one of her clients secured a Belgravia house, marketed in 2007 at $21.2 million (nearly £11million), for just $11.3 million.
With no currency to leverage, sterling cash buyers can’t match these savings, but they can get good deals. ‘They’re in a strong position,’ says Matthew Allen of Fisher German. ‘They may be able to get a better property than they could have previously imagined.’ Add to this the fact that interest rates have hit an all-time low of 0.5%, making it less attractive to keep money in a savings account, and it’s easy to see why cash purchasers are returning to market.
‘In the past couple of weeks, we’ve seen a lot of cash buyers, because they’re not getting enough interest from their savings accounts,’ says David Adams of Chesterton Humberts. Some of them are buying to let because rents, although much weaker than in the past, are still appealing compared to the yield on savings accounts and the uncertainties of the stockmarket. Others are purchasers in their fifties who want to help their children get a foot on the property ladder and know they can now obtain excellent value for money.
Opportunities for investors
Beyond stimulating the cash market, the Bank of England’s sixth consecutive cut in interest rates has also opened up opportunities for mortgage buyers, provided they can persuade banks to lend to them. Cheaper mortgages mean property is once again appealing to investors ‘because the yields are starting to stack up now that interest rates are so low,’ Mr Adams explains. Of course, investing in these troubled times requires prudence. Buyers need to acquire a property with good rental prospects, because the letting market is very crowded. And they must commit to it for the medium to long term, as they’re unlikely to see any capital gains if they resell in the immediate future.
The joint effect of low interest rates and substantial drops in property values can also benefit upsizers. ‘The money they can save on their upward purchase will more than outweigh the money they lose on selling their smaller property,’ says Miss Dell. Upsizers looking to move from London to the country can reap the greatest benefits. ‘At the top of the market, there was never as much of an arbitrage between London and the country as people thought,’ says Mark Parkinson of Middleton Advisers. ‘Now you should get more in the country for the value of your London house than a couple of years ago.’
That said, there are surprisingly few upsizers around. ‘The savings you can make by upgrading should bring a lot of people to the market, but there aren’t many,’ says Mr Adams. ‘It’s partly because they’re worried about their jobs, and partly because of the lack of mortgage products, as banks remain reluctant lenders.’ With credit so limited, Stamp Duty works as an additional deterrent. ‘These days, banks are no longer willing to lend on Stamp Duty on top of the house price,’ explains Mr Adams.
Top tips to make the most of the market
- Cash buyers should ‘be wary of buying with too much emotion, as this may lead to paying more than a property’s market value,’ says Mr Allen
- Euro and dollar buyers must consider the possible effect of further currency fluctuations, and, if buying to let, assess how much a sterling rent will be worth when they convert it back into their own currency
- Sterling investors should be wary of the rental market becoming too saturated
- Establish a good relationship with estate agents, as stock is being sold off-market. ‘It’s important to have a rapport with the agents and not just be a name in their database,’ says Mr Adams