HOWTO SURVIVE THESLUMP
Neither fear nor greed are particularly attractive emotions. But, like it or not, they are the volatile cocktail that fuels almost every kind of financial market – particularly housing.
When prices have been rising for some time, greed tends to get the better of people, and often all that buyers can see before them is the potential profit a housing transaction could make them, so they are willing to pay more. When it slowly dawns on them that prices have been rising too far and too fast to be realistic, fear takes over, making people particularly concerned about their finances.
With the market now moving from a state of greed to a state of fear, there are likely to be plenty of opportunities out there for canny buyers.
The past year was defined by properties selling for well above the asking price and by a spate of sealed bids, which helped push prices up higher still. This kind of greedy behaviour is on its way out – to be replaced by a buyers’ market.
Houses are already being sold at well below their asking prices, according to recent evidence. I have also heard plenty of tales of buyers managing to knock down the price even after an offer has been accepted.
Bearing all this in mind, here are some key pieces of advice for surviving the downturn:
Buyers should always bargain hard. Remember that it is in the vendor’s interests to sell as soon as possible, and that they will be just as aware as you that the market is no longer booming.
Sellers may have to be prepared to allow the property to go for lower than the advertised price. These days, a closed bid process is just as likely to reach a lower price as a higher one.
Don’t assume that a fixed rate mortgage will be best for you. Fixed rate deals have become incredibly popular in the past few years, with a phenomenal 80 per cent of recent buyers getting at least a two-year fix. While there are still some decent fixed-rate deals out there, the best ones have already gone, having been withdrawn by the mortgage lenders or sold out. Rather than simply going for a twoyear fix, think about where interest rates are likely to go during that period. Right now, it looks more likely that the next move for borrowing costs will be down at some point early next year. While a floating rate mortgage leaves you more exposed to the ups and downs, it is often a better deal – so don’t rule it out.
Think hard about remortgaging. In previous years, remortgaging was often a good plan. Rates were low and, if you decided to use the extra cash to spruce up your home, you could well have helped boost your house price. Given that the market is less profitable now, the same logic may well not apply.
Don’t expect your house price to increase much over the next couple of years – if at all. It would be highly foolish to incorporate a major increase in your home value into your bargaining. It may well have risen faster than your wage in recent years, but this cannot go on forever.
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