Property, is it really all doom and gloom?
'Recession' is a word that has been used recently to describe the state of the property market, but is it really all doom and gloom or are we just describing the glass as half empty when in fact it's half full?
There have been several factors in recent months that have made a change to the property market. HIPS (Home Information Packs) for example: before people who couldn't make up their minds whether to sell or not would put their properties up for sale at a silly price - if it sold they would have made a killing and if it didn't...well, no harm done! The introduction of HIPS as an upfront cost has now deterred the 'lets have a go' vendors from placing their property on the market.
Interest rates on the increase is a sure way of putting a halt on rising property prices. Uncertainty in the general economy, the knock-on effects we are feeling from the collapse of the American sub-prime market and the interest rate hikes in the past year have also added to the slow-down in the property market.
It is of course worth mentioning the Northern Rock situation. When you see on TV queues of people waiting to withdraw their cash from one of the big mortgage providers, it brings an earth-shattering reality check about exactly how volatile the property market can be, which has encouraged many people to stay where they are and not sell.
It was obvious that property couldn't just keep going up in price, because the people who start a chain - the first time buyers - were finding it more and more difficult to get on the property ladder. To help their plight some lenders were offering mortgages calculated on five times their salary, leaving people with no money to actually live their lives once their mortgage payments had been met. Clearly this is not a very satisfactory scenario.
So, is it really doom and gloom? At Northwood our franchisees have two main income streams from lettings and estate agency. Our lettings business has never been so good and we find that many more people, especially investors, are taking refuge from the volatile property market by signing up to our Platinum Guaranteed Rent Scheme. This is where we guarantee the rent to a landlord not only if the tenant fails to pay the rent but also if the property is vacant.
While we still offer all the traditional management services normally associated with lettings agents, our guaranteed scheme still remains our most popular service and accounts for around 90 per cent of our lettings business. January 2008 has also been one of our best months for listing new properties to sell, which rather dispels the talk about a property recession. In our experience people are taking a much more pragmatic view when selling their homes. Yes the value of their property may have fallen when compared to its value a year or so ago, but so has the value of the property they are going to purchase so what they lose on the 'roundabouts' they are gaining on the 'swings'. Also, in our experience the cost of a HIP is a rather small sum of money in the grand scheme of things and not a factor that would deter a serious vendor from placing their property on the market.
However, we have a number of prospective purchasers nationally who are currently living in rented accommodation having sold their home at the peak of the market a year or so ago. These people are playing property roulette, not knowing whether to buy now or wait to see if property prices continue to fall - it's at times like this that I wish I sold crystal balls for a living!
So I think the doom and gloom question really depends on your own personal outlook. At Northwood we see everything as an opportunity, when house sales are plentiful we look for higher volumes with slightly lower margins and when not so many properties are coming onto the market we simply increase our fees to compensate for the extra effort we have to put in to find a buyer, while our lettings business remains buoyant whatever the market.
Text: Andy Goodson