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.

It’s very difficult to call the market right now, some analysts are predicting doom, doom and more doom, yet others are proclaiming this is the ideal time to buy!  Who should you believe?  It seems like there is a never ending stream of contradictory information populating the media.  So what should you do?

As self-serving as this might appear, my honest opinion is that this is a good time to buy.  There are plenty of properties on the market right now which are sensibly priced, and even taking into account the fair pricing there are vendors who are still willing to listen to offers and are open to negotiation.  

The point is, countless properties on BrightSale’s books are priced to sell, even considering this difficult market.  Even in these negative times this particular still property strikes me as great value for money.

So, don’t wait for the media to report an upturn in the fortunes of the housing market before you decide to buy!  At that point it’s likely the best deals (like the one above) will have gone.

Now is the best time to buy - but then I would say that - I am an estate agent with a vested interest in selling property !

But think about it, many of the signs are pointing towards now being the best time for you to negotiate the lowest price on the property you want to buy.

If you don’t buy now you might look back at this point in time in a few months and say I wish I’d agreed to buy sooner?  Why?  Well:

1. Vendors have spent all year reducing their asking prices.
2. The media have hammered the housing market and vendors expectations are at their lowest level for years.
3. There is increasing choice in the market place.
4. There is a backlog of people who want to buy, especially in the first time buyers market, but they are wondering when make their move - when they do vendors expectations will harden.
5. Savers cannot get a decent return on their money in the bank or building society
6. If property auctions are anything to go by the property market is a good choice and investors are returning in their droves.
7. Stocks and shares continue to be high risk because of their volatility, buy to let investors feel that prices have stabilised and risk has reduced to acceptable levels.
8. Interest rates are at their lowest level since the 1950’s.
9. New build housing construction has come to a standstill so there will be a shortage of supply when the buyers return.
10. Vendors are accepting offers below what are already very realistic asking prices because they can pass their loss on to the property they buy.
11. The cost of renting has become more expensive than servicing a mortgage on a comparable property
12. Buyers are in short supply at this time of year, increasing your chances of being able to buy at the right price now.

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.

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…

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

Gordon Brown and Alistair Darling are under enormous pressure to relieve some of the downwards pressure on the UK housing market. But their options appear to be severely limited. Sir James Crosby’s recent report pretty much killed the idea of direct Government intervention in the wholesale mortgage market. Fiscal constraints also mean that any ‘holiday’ for Stamp Duty would have to be short-lived and restricted to lower value properties. This would (and has already) create short-term distortions and uncertainties in buying patterns.

But one there is one thing the Government could now to boost demand for UK housing significantly without costing the Exchequer a penny in lost revenue: this is to remove the restriction on Self Invested Personal Pensions (SIPPs) investing in UK residential property.

On 1st October this year SIPP rules change to allow holders of ‘protected rights’ pensions to move them into SIPPs. Pension advisors have told BrightSale privately that they expect a deluge of money (The Financial Times has estimated this number to be in the region of £100 billion) to flow from protected rights schemes into SIPPs on or after this date. But as it stands at the moment none of this money can be invested in the residential property market. Instead it will mostly go into commercial property and other financial assets.

We have also been advised privately that the only reason residential property was exempted at the very last minute from SIPPs when they were introduced in 2006 was a Treasury fear that demand from these vehicle’s would further fuel a overheated property market at that time. That was probably a good decision then. But times have changed dramatically since, and it is now time to re-visit this restriction.

We call upon the Government today to announce that from 1st October 2008 (when the new pension rules on protected rights pensions come into force) that the restriction on SIPPs investing in UK residential property will allow be removed. This will unlock a huge pool of money for investment into residential property and at a stroke will transform sentiment towards the UK housing market. Action is needed, and this is action that costs the Treasury nothing in lost revenue.

Stealth taxes have been a cornerstone of the Labour government’s fiscal policy for 11 years now. Stamp duty increases have been one of the most reviled in Middle England, and so it is with pleasure that we note Chancellor Darling’s seeming new willingness to consider allowing purchasers to (at least) defer Stamp Duty for a period. In our view, it would work best – at least in terms of getting transactions going again – if it were time-limited. At the moment, people who really should be moving home for economic or personal reasons are simply deferring the decision in the face of monthly price declines. Every month that goes by, these would be buyers (assuming they are trading up) are being vindicated in their decision to wait by falls in the market. If a purchaser knew that he/she only had (say 12 months) to complete a purchase to take advantage of a Stamp Duty holiday it might do something to balance up the ‘one way bet’ of simply waiting for property to get cheaper and cheaper.

In many ways, Gordon Brown’s parlous political position is a blessing for the housing market. Had he been stronger, he might have been more inclined to tough out the current downturn. As it is, he simply has to pull some serious rabbits out of the hat to have any chance of reviving his premiership. A well targeted move which breathed life back into the housing market would be an eye-catching way to start. He was a tinkering Chancellor himself, so let’s hope he encourages his successor to ‘tinker’ in a positive way for once.

In these challenging times for all estate agents we read with amazement that our already struggling high street competitors are raising their fees.

KFH recently said: “Our fees have gone up because of the nature of the property market as it is – we are having to do more to find buyers for our customers … In that situation, it is inevitable that fees will have to go up – we have 50 branches across London and have had to raise our fee across the board.” Mmmmm.

Perhaps if they focused more carefully on their cost base they would not have to raise prices for the hard-pressed consumer.

A senior negotiator at Bonnetts in Brighton is quoted as saying: “a lot of people are getting desperate to sell and so they put their property on with a load of agents. The chances of us selling it when we are competing with five other agents are slim and in a difficult market, you don’t want to spend the time on these sorts of properties if you are not going to get a good fee. If people walk away because the fee is too big then that is fine with us if it is something that we do not want to deal with”.

Well, firstly whoever let this member of staff speak for the company must be mad. Everything about it reads badly. The phrase ‘the chances of us selling it when we are competing with five others are slim’ exudes not just a lack of confidence in the market but also in the ability of the company to perform the task that the public are now paying them more for!

This is followed by ‘if people walk away because the fee is too big, then that’s fine with us’ just amazes me. Every instruction is a possible fee for an agent, letting people walk away is just madness. If I was still in traditional agency and one of my staff let someone ‘walk away’ because of a fee I would go crazy. They are negotiators, negotiate! Would you want an agent like that to let a potential buyer ‘walk away’ from your property because their negotiation skills failed them?

All estate agents, traditional and online, need to get real. The market is tougher, sure, but the way to deal with it is to roll up your sleeves, cut out unnecessary costs, and work harder. Simply raising fees and turning away business is the path to ruin, not salvation.