House sell­ers will find them­selves be­tween a Rock and a hard place

The Daily Telegraph - Property - - Cover Story - Ed­mund Con­way

So mad have the past few weeks been that it is dif­fi­cult to know where to start. Per­haps with the still shock­ing fact that there has been a run on a Bri­tish bank for the first time since the 19th cen­tury.

I trekked down to my lo­cal branch of North­ern Rock last week­end and the sight of per­haps 100 peo­ple — per­haps more — queu­ing up to with­draw their life sav­ings was dif­fi­cult to take in.

The last time I saw some­thing like this was in Ar­gentina six years ago, when the econ­omy suf­fered a cat­a­clysmic shock and ev­ery­one ran for the hills. Buenos Aires at that point was char­ac­terised by wild ri­ots, and while I don’t think the mainly sil­ver-haired crowd out there was ca­pa­ble of sim­i­lar may­hem, the mood was still one of con­fu­sion and re­bel­lion.

At the time of writ­ing, there was still no con­firmed buyer for the bank, though the stock price had re­cov­ered frac­tion­ally and the queues had abated.

I don’t think any­one in the fi­nan­cial world — even the more pes­simistic of us — an­tic­i­pated such a dra­matic event. This event and the Gov­ern­ment’s re­ac­tion to it raise plenty of po­lit­i­cal ques­tions about Bri­tain and the na­ture of its free mar­ket econ­omy — and check out the Your Money sec­tion for more ad­vice about what it means for your in­vest­ments.

While it’s now pretty clear that the bank­ing cri­sis will leave a size­able dent in con­sumer con­fi­dence, no one can truly pre­dict the even­tual re­sult for the wider econ­omy.

But I now have lit­tle doubt that this will well and truly bring an end to the hous­ing boom. Don’t take my word for it: lis­ten to Alan Greenspan, the for­mer head of Amer­ica’s cen­tral bank, the Fed­eral Re­serve. He told me that the hous­ing mar­ket is “go­ing to turn — it’s got to turn”.

Or what about Martin Weale, the head of the Na­tional In­sti­tute for Eco­nomic and So­cial Re­search, who be­lieves that the North­ern Rock de­ba­cle is likely to be the trig­ger that causes a hous­ing cor­rec­tion.

With con­sumers more wor­ried than ever about their fi­nances, it seems likely that many of the more spec­u­la­tive buy­ers will aban­don the mar­ket.

The buy-to-let sec­tor, is al­ready look­ing slightly frag­ile, seems par­tic­u­larly vul­ner­a­ble.

How­ever, the likely cor­rec­tion — or crash — owes less to the events of the past few weeks than to the record amount of house­hold debt that has built up over the past decade. Things haven’t changed: con­sumers are still more pressed than they have been for well over a decade; house prices are still mas­sively over­in­flated.

I will in­ves­ti­gate the likely fate for the mar­ket in next week’s edi­tion, but in the mean­time here is some ad­vice for would-be buy­ers and sell­ers. It is now a buy­ers’ mar­ket. This will make it eas­ier for buy­ers to bar­gain for cheaper prices — even if they have al­ready had an of­fer ac­cepted. I wouldn’t ex­pect the ad­ver­tised prices of prop­er­ties to fall all that much, but peo­ple will now be able to get hold of prop­er­ties for well be­low the ask­ing price rather than com­fort­ably above it.

The next move in in­ter­est rates is al­most cer­tain to be down rather than up — per­haps sooner rather than later, de­pend­ing on how long the fi­nan­cial cri­sis lasts. But there are still plenty of de­cent fixed-rate deals out there.

My fi­nal warn­ing would be that those buy­ing a home to­day and in­tend­ing to sell it on within the next two years should not ex­pect its value to in­crease much — if at all. With the mar­ket likely to flat-line at best, things are now very dif­fer­ent from the past decade.

ed­mund.con­[email protected]­graph.co.uk. Ed­mund Con­way is Eco­nomics Ed­i­tor of The Daily Tele­graph

See Prop­erty Clinic on page 15 for mort­gage ad­vice and tips on buy­ing in a cool­ing mar­ket

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