On the eve of June 23rd 2016, I was amongst the so called well informed group of people who thought the days that followed would be Business as usual, and a unanimous vote would see the United Kingdom remain in the EU. As we now know the reverse became true, and as the reality of a muddled future dawned on June 24th, I realised we had underestimated the deep rooted issues felt across the nation.
In the four years that followed we’ve grown to love or hate uncertainty, and regardless of your politics we’ve all been exhausted by the outcome of that vote. We feared the worst for the short term economic prosperity and the impact this would have on the property market, which contributes so much to our economy. Since Brexit was announced, I’ve been involved in over £170m of property transactions. Be it for individuals buying their dream home, a Pied-a-terre or adding to their investment portfolio.
Buying a home is by far the biggest single purchase most people will make in their lifetime, so to engage in what’s been a turbulent market is mostly down to circumstance rather than choice. That said, there are a growing number of people who look to property as an investment that provides both income and long term capital growth. If you count yourself in that bracket then perhaps your reason for continuing to buy properties over the last 4 years has been driven by opportunity. So we can define the two types of buyers as; those that need to buy, vs those who choose to buy.
In any case, no previous market conditions could have quite prepared us for what 2020 had in mind. By late March as Covid-19 took hold, the Government asked for all property transactions to be delayed, a place we’ve never been before. Naturally the reaction to this was two fold; panic for those who were counting on a property sale to release equity or repay debt, and excitement for those still in the middle of negotiations. Surely discounts would now be afoot as sellers become more desperate?
Several weeks into the lockdown in April 2020, it was widely reported by Zoopla that the 373,000 property sales were on hold with a combined value of £82billion. Whilst this became a major headline it also forced people to ask the question, ‘When is the right time for me to buy a property? And the answer…..well that depends on several factors; the type of buyer you are, Cash or Mortgage, what you’re buying, New-build or old, and why, to live in or to rent.
If you’re buying a property for less than £1m, then you’re entering a competitive section of the market. If your budget is up to £600K then the competition gets stiffer still. If you’re buying a house or flat for £400K or below, then the power ratio between buyer and vendor is 50:50 and perhaps very little room for negotiation as this sits comfortably within what’s considered the affordable housing bracket. Developers have obligations such as Section 106 and Community Infrastructure Levy (CIL) and are often encouraged to consider affordable housing when building new homes. These units are usually sold to first time buyers, Investors, or local authorities and as such there is no shortage of people who want to buy them or can afford them.
Understanding the market you’re in is important, for example; for a first time buyer using the Government equity loan incentive, Developers may not be prepared to reduce the asking price, but I’ve seen several cases where they’re willing to cover your stamp duty cost. So if you’re buying a property for £500K, you pay a 5% deposit of £25K, and the developer would pay the £15K stamp duty for you. This lowers the overall amount you have to find for the purchase. If you’re getting on the property ladder for the first time or you’re moving due to family size, work relocation or other change in circumstance beyond your control, then the right time to buy is when you find a property that meets all your requirements. Bearing in mind that if the value is within the affordable bracket then there will be more competition, therefore don’t expect any significant reductions in the price even during a pandemic or a recession.
For those more experienced and looking to acquire additional properties for personal use or for investment then you have the luxury of choosing the right moment, and perhaps your search criteria can be a little broader. In my experience those who buy 2nd or 3rd homes to live in usually do so with a plan in mind. They want to buy something with potential and redevelop it to their own taste. After they’ve swallowed the pill of additional stamp duty costs, they turn their minds into project development which I must stress isn’t for the faint hearted.
A common trend that followed after the Brexit vote was people choosing to improve their current homes rather than incurring the cost of moving. This meant redeveloping properties from ground up or simply adding a bedroom, a loft, or even an extension. At the time it seemed a logical approach and owners were ready to cash in on the increased property values (or so they thought). However when the redeveloped properties were eventually revalued, they rarely reflected an uplift, which meant that all the money spent had not added the monetary value they hoped for. This became a problem for those looking to recoup what they had spent via remortgaging or equity release, as they were not worth the projected values. The reason for this was partly down to market sentiment but also a lack of comparable properties. If your home stands out significantly from everything else on your street, then its likely that the value will be affected by what’s surrounding it. Something to bare in mind for all the future self developers.
So the right time to buy a property is more personal than what some commentators might have you believe. A recession or economic downturn does not automatically mean bargains all round. The purchase has to be on your terms and fulfil your objectives. When you have the benefit of time and resources, you can be more thorough in your search, but if you’re time poor then you can delegate to Property buying agents, who for a fee can find properties that sometimes never make it to the open market. How? Well they are often very well connected and will justify their fee by the money they save you on the asking price.
Author: Urban Financier