Brightsale

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.

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.

An excerpt from our latest research report into the myths surrounding the Property Misdescriptions Act 1991…

What is not fair is traditional agency’s misinterpretation of the law to justify their costly and cozy business practices, to the detriment of online estate agents. And of course the biggest culprit is the oft quoted, and oft mis-quoted, Property Misdescriptions Act 1991. The Act is well-named, because there cannot be a more widely “misdescribed” piece of legislation on Britain’s statute books.

Another great piece by our research team that is a must read for anyone interested in this often murky subject. Click here to read the full report.

Today’s RICS survey shows that 78.5% of surveyors reported a fall in house prices in March. This is not surprising, as we pointed out in our recent research report, Is There a Future for High Street Estate Agency?, house prices in the UK - as a percentage of average earnings - remain well above the peak ratio of 1989.

The property derivatives market, which we believe offers the best guidance on future price trends, continues to point to steep falls ahead. Our friends at DTZ sent us up to date prices this morning. They certainly make for interesting reading:

Average / House Price / Change
Current    £194,094
Mar-09    £170,803    -12.0%
Mar-10    £163,039    -16.0%
Mar-11    £161,098    -17.0%
Mar-12    £163,039    -16.0%
Mar-13    £166,921    -14.0%
Mar-14    £174,685    -10.0%

Bear in mind also that prices have already fallen almost 3% from their high of £199,600 in August 2007.

In traditional estate agency there have been two responses to the gathering evidence of a significant correction in the market. The first is simple denial. Hence we still have forecasts from ‘commentators’ such as Savills’ Lucian Cook who as recently as February still predicted a 3% increase in house prices this year.

The second response has been to increase fees. This is rather more puzzling, although it is great for online agents like us. Hence we read in last weekend’s Financial Times that Savills was proud to announce an increase in their fees to 2% - 2.5% in the last couple of months. This was justified, according to the FT, on the basis that ‘property is harder to sell now’.

Well forgive us for being a little churlish, but surely it is always hard work providing buyers and sellers of property with a quality service. Surely that doesn’t change regardless of the state of the market.

So why the increase in fees, and why so proud about it? The FT piece went on to rubbish online estate agents by lumping high quality, full service, companies like BrightSale in with ’sell it yourself’ websites like Houseladder and claiming that they couldn’t sell property in a bear market.

Far from it, our rigorous approach to completion chain management has left us, if anything, at an advantage versus the high street brigade in more challenging times.

We wrote the FT to clarify the matter, but regrettably that have not deigned to print our response. Far be it from us to suggest that this might have something to do with the amount of colour advertising that Savills does in the Weekend FT. But in the interests of balance, we thought we should publish the letter the FT rejected here:

Dear Weekend Editor:

Your rather lop-sided defence of the traditional estate agency set up a false dichotomy between traditional high cost agents such as Savills and ’sell it yourself’ websites as provided by Tesco and Asda (’We’re back to having to work hard’, Weekend FT, April 5th/6th).

Pure ‘sell it yourself websites’ such as Tesco’s had no chance of success. The convoluted process of buying and selling residential property in England and Wales (which HIPs have done nothing to alleviate) means that vendors certainly need an experienced agent’s help in managing the completion process.

But sadly your correspondent completely overlooked the fastest growing sub-sector of the market: the full service online agency. These companies employ experienced hard working agents but in more efficient call centre locations. In a report published last week (Is there a Future for High Street Estate Agency?), my own company noted that listings with such agencies had leapt 58% in the last nine months alone. If this sub-sector were counted as one group it would now be the tenth largest agency in England and Wales (by instructions).

Your correspndent also seems to ignore the fact that traditional agency fees have been in steady decline since 1997. It would defy all business logic if a period of steeply falling demand for estate agency services (with lower transaction volumes) was met with a sustainable increase in prices.

Our research shows that if house prices and transactions fall in accordance with previous cycles, that the costly branch network and staff overheads built up during the doom years could be an anchor that drags down traditional high street agency for good (as has all but happened in conveyancing and travel agency). The future certainly belongs to estate agents who work hard, but probably not from expensive high street premises in logoed cars.

Yours etc.

Andy Etches
CEO

Commenting on the publication of a major BrightSale research report (Is There a Future for High Street Estate Agency?) BrightSale Managing Director Andy Etches said:

“A combination falling house prices and completion rates is going to cause major upheaval in the next couple of years. Many traditional agents are already struggling. We demonstrate in this report that the high costs associated with an increasingly redundant branch network are going to be the anchor that sinks the traditional agency ship.
Online estate agency, by contrast, is growing rapidly. Online listings are up 58% in just the last nine months (to 3,200), making the online sector now the 10th largest ‘estate agent’ in the country.
Vendors are feeling the pinch, and they are keen to secure the best deal possible when selling their properties. This is causing them to migrate to online agents in record numbers.”

Read the full report here.