Brightsale

Taking into account we are now officially in a recession, you would be forgiven for believing that the housing market is currently, stagnant.  Whilst prices have undoubtedly taken a tumble, our own performance statistics indicate that this price correction has stimulated potential buyers into looking at property again.

In fact, the number of buyers we have sent to our vendors in January 2009 compared to 2008 has increased quite drastically, as has our site traffic to viewing ratio.  It seems our experience is not unique either.  Earlier this month the excellent Property Portal Watch blog commented on the increased traffic claims from both Globrix and Rightmove in January.  There’s even still gazumping going on, which is unusual in a flat market!

On this evidence, it seems irrefutable that there are lots of hungry buyers out there, and from our experience a large number of them are ready and able to proceed with a purchase.  So if you are thinking about selling, or have your home on the market already, so long as your property is realistically priced, don’t be surprised if you get lots of house hungry people through your door.

Well he did his best.  After his interim report in July was positively tepid in its support for direct Government intervention in the mortgage markets, Sir James Crosby finally got off the fence in his full report (published with the pre-budget report this week).  In fact he went from lukewarm to ‘shock and awe’.  Without direct Government intervention in the wholesale mortgage markets he predicted that it was “very likely” that net mortgage lending would fall below zero in 2009.  Yes BELOW ZERO.  This means that the amount of mortgages being paid off would exceed the sum of new lending.   To put this in context, in the year to Sept 2007, Bank of England data shows that net residential lending totalled £ 84.7 billion.  In the year to Sept 2008 this had slumped to £37.4 billion.  Lending is down a little over 50% and sales transaction volume is down – well yes, around 50%.  So if net lending falls to zero, then transaction volumes go to?  The spectre of a virtually closed housing market looms up before us.

Sir James proposes to lance this terrifying apparition with a good old fashioned dose of nationalisation.  He proposes that the Government should guarantee £100 billion in new mortgage securities (on a temporary basis) in 2009 / 2010.  But the problem is that Sir James has does not actually possess a lance.  The lance is held by Chancellor Darling.  But will he actually use it?  Many in the industry drew heart from Mr Darling’s response to Crosby’s full report yesterday, but the optimism needs to be tempered.  Mr Darling certainly did not say he would definitely adopt this proposal.  In fact he was very clear that he could not adopt it without clearance from the EU.  In fact, looking at the exact language used by Mr Darling he only committed the Government to  “proceed to work up a detailed scheme based on Sir James’s recommendations”.  Given that the budget is not until next March this hardly smacked of a urgent response to a pressing problem. 

Our sense is that Mr Darling is very much keeping his options open, waiting to see how other factors play out before deciding what actually to do about the mortgage market.  The problem is that the Government’s balance sheet is ballooning at an alarming rate.  Adding another £100 billion in the form of Government-backed mortgage would be a massive decision, and EU approval for such aid is by no means guaranteed. 

And then there is the issue no one seems to have noticed.  Many Westminster watchers are shortening odds on a Spring 2009 General Election.  Were this to occur and Chancellor Osborne took over would he feel similarly constrained to implement Crosby’s bail out?  Given what both he and David Cameron have been saying about the Government fiscal “irresponsibility” surely the answer is no.   

We support measures to ensure the stable and proper functioning of our mortgage markets.  Without them, Britons could become virtual prisoners in their own homes in 2009 and 2010.  But homeowners and estate agents have to prepare themselves for the fact that 2009 could be very difficult indeed.  They must not be lulled into a false sense of security and believe that Sir James has definitely ridden to the rescue.  Homeowners who need to move in the next 12-18 months should get their properties on the market now and should price them sensibly.  There are still mortgage-approved buyers out there, but undue delay or unrealistic pricing could yet mean tangling with a real dragon next year.  There is no time for delay.

Today, we have formally announced a landmark deal between BrightSale and the highly regarded traditional estate agency Thornley Groves.

The purchase of 25% of BrightSale by Thornley Groves represents a major step forward for BrightSale and UK estate agency as a whole. We believe it firmly cements BrightSale’s position as the UK’s leading online estate agent and opens up our unique service and platform to many new customers.

To read the full release and see more details, visit our press section.

We are confused - and we don’t mean a super-annoying car insurance advert. We are confused because for about a year now we have been assured that high street estate agency fees have been rising. The story has been that it is much harder to sell properties at the moment (which can hardly be doubted) and that estate agents are now having to work much harder (bless them) and therefore the general public are only too happy to pay higher fees for the service. It is the last point that has always struck us as a little odd. We know that in the early 1990s house price recession agents’ fees did go up. In some well-heeled areas we know that some agents even got away with charging a ‘registration fee’ of up to £500 just to list a property, and then up to 3% commission on top of that. But times have changed a great deal since then. Competition from lower cost modern agencies such as BrightSale have changed the competitive landscape – and have surely made it much harder for high street agents to simply raise prices in the face of falling demand (which is all they are doing).

So it was almost with a sense of relief that we read yesterday of the major London agent Lauristons offering customers a chance to opt out of the traditional 2-3% (this is London remember) fee in return for a non-refundable up-front payment of £999. To us this looks like a desperate attempt to get some, ANY, cash flow into their business before the year end. If you cannot make money actually selling properties, try to make it by listing them instead.

But isn’t this just another sign of a business model that simply doesn’t work anymore? Most vendors in these hard pressed times are not going to be happy forking over £1,000 in cash with no guarantee whatsoever that a sale will be achieved. So although Lauristons’ move certainly worked as a PR stunt, it will do nothing to address the fundamental problems of traditional agency: bloated costs, ineffective technology, poor client service, excessive fees etc. But as the Director of the company concerned said: “the market is changing and the current economic climate means it probably won’t be the same in the future.” Amen to that!

In a communication to all its members last night, RightMove effectively rejected calls for it to reduce its fees or to move to a different form of charging (per property rather than per branch). The company’s argument appears to remain that estate agents should reduce their print advertising budgets instead. The other major change is a reduction in focus on overseas property – which we were aware RightMove was already struggling with. To us this looks like another clear indication that the British public’s previous rush (we might call it the Place in the Sun stampede) into overseas property is slowing abruptly.

What agents make of RightMove’s decision to tough it out on fees will be interesting to see. Many have threatened to leave the portal (as many as 75% according to a recent poll). By sending this communication RightMove appears to be calling the bluff (if it is one) of those agents, and effectively daring them to try to survive with them. We will see how many put their listings where their mouths are and leave! To quote Margaret Thatcher, RightMove is clearly ‘not for turning’.

A lot of estate agents will probably have had the same response that we did to the news that sellers INCREASED their asking prices in October (by 1% over September): i.e. Are You KIDDING?? The explanation RightMove gives for this seeming anomaly in the current difficult market is that if a seller knows he is going to chipped away on price he (and his agent) might as well start with the highest number possible! As we all know, and RightMove rightly points out, this is patent nonsense. Over-pricing can lead to the property not being seen at all by the right buyers. A buyer looking for (say) a 2 bedroom city centre flat will often have a very tight price range in mind (especially at the moment). This price range (say £160,000-170,000) will form the basis of all that buyer’s saved website searches. They will only receive notifications when property listed in this range appears on the market. This means that the misguided seller listing at £190,000 with a view to accepting £165,000 will not appear on the radar screens of the very buyers he/she is really targeting. Madness.

But there is another, more intriguing, explanation for RightMove’s October result. Because all RightMove does (we believe) in compiling the statistics is to compare the prices of properties listed in one month with the previous month, the data set is always changing. So an equally plausible explanation is that the composition of listings is changing and that higher priced properties are now coming for sale. This would be consistent with anecdotal evidence that the better off in our society have initially been sheltered from the effects of the economic slowdown. Is it catching up with them now?

This set us thinking even more. We wondered how many million pound plus properties might now be coming on to the market as the investment bankers and hedge fund managers who have done so much to drive up central London prices start to head for the exits? A few additional properties such as the £40 million ‘flat’ (!!) in Chesham Place SW1 (listed by Knight Frank) might really change the RightMove sample meaningfully.

How ironic it would be if the distressed sales of former ‘masters of the universe’ were giving the impression of market strength, rather than weakness…

As unusual as it might seem for us to link to a traditional estate agent twice in a week, I couldn’t help but comment on the latest blog post from the London estate agency Chard.

It seems that Chard really don’t like “for sale signs”, which in all honesty I find quite unusual, especially for a traditional estate agent. Here at BrightSale, despite our expertise of this new fangled internet thing we really value some of the traditional marketing methods, especially for sale signs.   We also think they have some evolution left in them, after-all they have remained pretty unchanged for decades. To let you into a little secret we even have some ideas in development on how to bring them into the 21st century.  On the whole though,  we don’t think the world is ready to say goodbye to boards just yet.

In the meantime though, what is your opinion on agency boards? Do you love them or loath them? Have your say in our poll to the right.

Admittedly and ashamedly, I’ve been quite quiet on the blog post front this month. The reason for this is that the birth of my first child, Lilly, occurred on the 31st August and as those of you that have experienced this life changing event will concur, I have been kind of busy for the past three weeks!

Being in my early thirties, children were appearing everywhere around me. The majority of my friends were having them and nights out were just deteriorating into conversations about nappy contents and first smiles/words/projectile vomits etc etc. I couldn’t understand what was happening, why was no one else interested in the latest vodka flavour, the cocktail shown on ‘Something for the Weekend’, and the latest ‘Wolf in sheep’s clothing’ by Audi? Until now, I had no idea.

I think the realisation is simple, times change, people change and priorities change. The friend that always had the Robert Carlyle ‘Begbie’ moment whenever he had too many to drink had suddenly become a calm doting father. The friend who seemed to know lots of men in Epsom when she drank was suddenly settling down with baby and its father. Its strange, but these are people I had never envisaged changing.

Now, I know your waiting for the tenuous estate agency link somewhere, and so as not to disappoint, here it comes. Agency is changing, the ‘New arrivals’ would be the internet, ourselves and some of the other online agencies that are appearing and the old friends changing their ways would be the Spicerhaart’s and Connells of this world, once stuck in their ways but now grasping the web with both hands. One London agent, Chard, even has a blog!

My concern however, is for that friend that never changes, he or she is still sitting in the corner of the local pub that you first drank in, single, lonely and probably living at home with mum. Compare them if you will to the agencies denying that anything is wrong or that technology is beneficial, until one day you walk past and they are boarded up, just like your unfortunate friend.

The news that the unfortunate new owners of Foxtons have called in NH Rothschild’s to perform a ‘strategic review’ of the business made us smile. They say that in the land of the blind the one eyed man is king. But in the land of estate agency, Jon Hunt appears to have had a telescope when everyone else was using a microscope.

Foxtons was bought (as everyone now knows) right at the top of the market by the private equity group BC Partners. How much insight BC Partners put into UK estate agency is not clear (their previous acquisitions were in healthcare and publishing), but one suspects that their vision was positively 20/20 compared with the two groups that put up the bulk of money: Bank of America and Mizuho, who between them lent BC £260 million to fund the purchase. We are certain that Rothschild are a top quality investment bank, but we wonder whether the venerable old firm is really the right person to advise on the future of estate agency in 2008.

So here is our offer… in April this year we wrote a report entitled (co-incidentally) The Future of Estate Agency(PDF) . We are prepared to let Foxton’s executives have a copy of it FREE, as an alternative to their multi-million pound ‘review’ by the blue-blooded bank. Our note sets out clearly how the branch-less online model works and how it delivers superior customer service at a price vendors judge to be fair and reasonable (i.e. a long way from Foxton’s 3% tariff).

With the money they save on the advice, Foxtons might even be able to fuel their minis for another few weeks…

Today BrightSale announced that it had written to the Chancellor demanding the removal of the restriction on SIPP pension schemes investing in residential property. BrightSale argued that such a measure would have a hugely positive impact on the housing market and (unlike the removal of stamp duty) would cost the Exchequer nothing. The full text of the letter is reproduced below:

Dear Mr Darling,

Amidst the media frenzy regarding the possibility of a ‘stamp duty holiday’ this Autumn, we fear that you may be missing a potentially much more effective (and cost-free) remedy for the current housing crisis.

As you know, on 1st October this year holders of ‘protected rights’ pension assets will be allowed to transfer those assets into Self Invested Personal Pensions (SIPPs). The Financial Times this weekend estimated that up to £100 billion in assets could be transferred at this time. As it stands currently, none of this money can be invested in residential property because of the Government’s last minute removal of residential property from the qualifying assets list in 2006. This is despite the fact that when the legislation was drawn up in the Finance Act of 2004 it was Government policy that residential property would be included in ‘SIPPable’ assets. We understand that at that time the Treasury feared the impact of extra demand on an already tight property market. We do not dispute that that may have been an appropriate decision then, but with prices now in free fall surely now there is strong case for revisiting the restriction.

Lifting the restriction on residential property in SIPPs as of 1st October 2008 would not constitute a ‘bail out’ or involve intervention in the mortgage markets. It would involve no ‘special favours’ to property owners. It would pass any ‘fair and reasonable’ test because it would simply remove a restriction that, until 2006, the Government itself regarded as iniquitous. The special conditions that applied to the property market in 2006 have now certainly dissipated. Property derivatives markets are predicting a total peak to trough decline in prices of over 30% - more than double the total fall in the 1989-1993 period.

The Government should not set the price of tradeable assets in a free economy. But neither should the Government unnecessarily restrict investment where it is needed. Price movements are telling us that investment is needed in residential property. As you will also be aware, unless urgent action is taken at this time the Government’s goal of delivering 240,000 new homes a year may as well be torn up.

Action is needed to break the vicious cycle of self fulfilling negative price expectations. Many of our customers have marked down their properties by 20% and have still have had little success in attracting interest. The market has virtually ground to halt in many areas of the country.

Unlocking £100 billion in SIPP capital has the potential to reverse the spiral of negative expectations and to get transaction levels moving upwards again. It would have much more short-term impact than a stamp duty holiday and would not cost the taxpayer a penny. It is a far more logical response to the crisis and we urge you to look closely at it.

Because of the huge amount of public interest in this matter, I will be making a copy of this letter available to the press.

Very best regards,

Jeremy Howard
Finance Director