As London house markets tumble further south, lack of clarity on Brexit and the Government being held together by a thread, there is one group that should be taking the opportunity to buy property: First time buyers.
Rightmove’s latest figures revealed the average asking price for British properties has fallen by 0.4% in June. Annual growth rate slowed to 1.8% (below inflation).
The key to this group is to ensure they learn to negotiate to get the right price. Barclays Mortgages, suggests 51pc of first-time buyers who bought for the first time in the past five years regret not negotiating prior to purchase. It also revealed that one in five paid over the asking price by an average of £8,000 – with that figure soaring to £13,000 in London.
The balance of power in the London property market is now in the buyer’s favour. Rightmove lists 1,925 properties for sale in Camden this month. However, Land Registry figures show an average of 166 homes per month sold in the borough last year – less than a tenth of the properties for sale. Gone are the days where agents offered viewings for one hour on a Saturday and you went round with 30 people. You have the ability to debate terms.
In November 2016, the average asking price for a home in Camden was £1,174,095, while the average sold price was £872,390. That’s just over £300,000, or 29 per cent difference between what sellers wanted and what buyers actually paid.
Buyers are being driven by fear of missing out. Here we lay out some strategies for first time buyers to save thousands.
When buying a house there are many factors that you need to consider and some of these factors are out of your control. Being part of a chain of other buyers means if one drops out then all the properties may also. Someone looking for a quick move may be very keen on a first time buyer. First time buyers are not in a long chain and actually being in this situation is a hugely powerful position to be in. Exploit this during your negotiation!
Andrew Boast, a director at SAM Conveyencing, said doing your homework is all-important.
“First-time buyers often trust the sale price that the estate agent has set, focusing primarily on being able to afford to buy at that price rather than negotiating it downwards,” he said.
“What is important to remember though is that the seller instructs the estate agent to sell at a price which brings in the highest amount of money achievable rather than what the current market dictates. A first-time buyer should protect themselves against paying over the odds by doing their homework to ensure they are paying the current market price for the property taking into account its condition.”
Furthermore, Mr Boast added, “There are free tools to use to check what price you should be paying. Rightmove and Zoopla both provide historical data for properties sold near yours. You should look for sold properties within the last 12 months. Under offer and not sold properties often show the asking price of the estate agent, not what it actually sold for.”
David Hollingworth, a director at L&C Mortgages said researching the area you want to buy in and determining what similar properties go for is all important.
One way to make an objective calculation of what any property is worth is to work out what the rental yield would be. This works regardless of whether or not you ever intend to let the property out.
Find out how much rent for the property would be from the agent then work out the annual figure (multiply by 52 if they offer a weekly figure, 12 if monthly). Divide the annual rent by the asking price and multiply by 100 to get a percentage. Investors want a yield of at least six per cent.
If the yield is closer to three or four per cent, which is a typical figure for central London, then you’re offering too much. What yield doesn’t do is work out how much subjective things that you can’t value are – the view from the kitchen window, or the proximity to your parents – but it will show you what it’s worth objectively before you get carried away and fall in love with it.
You are about to spend yours or your parents lifesavings and additionally have a mortgage that you will be paying back for multiple years. There is no need to panic buy or rush the sale so take your time. David Hollingworth recommends securing an ‘agreement in principle’ with a lender before you put in an offer to boost a seller’s confidence in you. “An agreement in principle is effectively a very cheap application. It’s not doing lots of income checks, but you will be asked how much you earn and they will carry out a credit search.”
Hollingworth says getting one or two of these checks carried out is a good idea, but warns against going too far in the other direction, as too many “heavy footprints” – companies checking your credit history – could make it appear you are attempting to borrow multiple times.
Both brokers agreed that an independent survey, which is likely to cost a few hundred pounds, is a good idea to make sure the quoted price is fair. “A first-time buyer should survey the property to find out if the property’s condition should command the full market value,” said Mr Boast.
“Defects such as damp, subsidence and dry rot will have a negative effect on the property as can certain structural changes. A RICS survey highlights property defects that, if present, reduce the current market price of the property.
Finally, a mortgage valuation completed by the mortgage lender is also a good indication (prices can range from £300 to £600) of if the estate agent has overvalued the property. If they have this will be caught out by the lender.
There are 25 million properties in this country and there is more than one with your name on it. Although it may feel like you’ve been looking for half your life, don’t be pushed, don’t be rushed and don’t be frightened of walking away. You can do this right up until you’ve exchanged contracts.
You’d be amazed how many people come back and say “you know that derisory offer you made a couple of weeks ago? On reflection could we take it?” That said, you don’t want to get a reputation for being unreliable so don’t use this as a strategy. There are enough people who’ll let you down, don’t add to it.
DealMakerz thinks the current unstable and generally flat London market should bode well for first time buyers who have the capital and lending facilities to purchase their first property. Any buying agents who aren’t focussed on first time buyers should possibly look into the market!