Buying Property in London: The 10th Circle of Hell
I’m no expert on London housing, but the strength of the housing market in one of the world’s most popular and greatest cities continues to be a matter of international interest. So I thought it proper to bring in someone who, unlike me, actually knows what they are talking about.
Today’s guest blogger is Martin Stewart the director of London Money, a firm of regulated financial advisers uniquely positioned in the heart of London from where they help to guide, build and facilitate a client’s financial plan.
Their strength and skill set is focused primarily on the arranging of most types of personal and commercial finance.
Guest Blogger: London Money
Do you remember those halcyon days when you walked around a property you hoped to buy grinning at your partner behind the owners back, trying hard to hide the fact that you would do ANYTHING to buy their home? Then you leave and tell the Agent you would like to think about it, wait a couple of days before suggesting a second viewing whilst also cheating on your possible new home by dating other comparable properties in the area. Then, when the tension gets too much, you decide to jump in with an offer at least 5% below the asking price. Oh the arrogance of it all!
I remember this process very well, it was only 3 years ago that I did this myself.
Cut to 2014 and what do we see? Well the quick answer to that question is complete and utter chaos. The home buying model is broken, particularly in London, and a new more sinister model has begun to emerge.
Now it is all about the “open day “. What’s that you ask ? Well it is an opportunity to herd as many people through the same property in as short a time as possible with the ulterior motive of creating instant paranoia amongst the buyers. That is then followed up by the question designed to strike fear in to the heart of every buyer, “can you let us know your best and final offer?”
So, no time to really think, no time for due diligence, no time to compare and contrast. No, not anymore. You have spent all of 15 minutes looking at something valued at £500,000 and it all boils down to a “do you wannit or not?” I have spent longer debating which sandwich to get from M&S. This new house purchase model makes the old bidding at an auction scenario almost pedestrian by comparison.
Here are some first hand anecdotal situations we have come across in the past few weeks alone:
A client buying a probate house in North London overbid the £725k asking price by £100k. He didn’t succeed, someone else bid £200k over
A client looking at a 2 bed flat in Greenwich was just one of 16 firm offers put in on the place within 48 hours of the open day
A client looking in Wimbledon found himself shuffling around a house with 30 others . It transpired 28 of them were buying chain free.
Let me be clear here. We are not referring to “Super Prime “ properties in the currency havens of Mayfair and Kensington. These are AVERAGE properties in good areas which AVERAGE people are now finding impossible to buy.
These current market conditions are just one of the many massive social changes which we will continue to witness as the fallout from the credit crunch permeates. We could go back further still to the easing of credit at the start of the Century for the original route cause.
“Oh what a tangled web etc etc etc”
One of the major casualties of the current housing crisis( and it IS a crisis) is the first time buyer. They have for all intents and purposes become redundant in the home buying process. In the space of 5 years they have gone from being the life blood of the market to being a bloody nuisance. They have, as you can probably guess, been replaced by Buy To Let investors.
As usual the powers that be continue to sleep walk us all into the abyss. We do NOT need ANY Government sponsored initiatives anywhere near London nor probably the South East. Let the ten worst performing regions in the UK have all of that money (and more).
We get asked by virtually everyone we meet “are we in another property bubble?” Our answer is “Yes, because we never left the last one“. We never naturally corrected the market. We just pumped it full of steroids and cheaper credit. Will it crash? Who knows? I sincerely hope not, unless you really want to live in a London that will resemble that of the film 28 Days Later. My feeling is we are too interlocked, we can’t escape even if we wanted to. When a country like ours is owner occupied to the tune of 70% the basic utilitarian principle of the greatest happiness for the greatest number of people prevails. My vested interest is your vested interest and vice versa.
I can see what Cameron was saying now . We really are all in it together. Right up to our necks.
I started to view properties in London and I can’t agree more with this article. I recently viewed a flat for sale in “South Kensington”. Asking price £500k (funny how they all sell into that bracket). Firstly, it took easily a 7 minutes drive to reach the destination. That borough looked so average, no shops or restaurants, and the busiest road I ever seen (I almost got hit when I stepped outside of the car). I don’t know which borough that was but I knew I was, very, very, VERY far from South Ken. But of course the agent assured us that it was the borough that offered the best value for money in south London. Anyways upon arrival we were shown a place that was still being refurbished and were told it was the last available flat, that ALL the other flats (also still not finished) had been bought already. The bedrooms (2) were hardly big enough to fit a double bed in. I mean seriously? Who the hell is so desperate to buy such average properties at this price? And you still have to walk ten minutes to reach the closest train station!
First impressions are often the correct ones, and what I felt in that apartment that day, with the agent looking at me, the worker who opened us the door and who followed us around all the time (and seemed to know everything about the flats), the impossibly small rooms and the confirmation of the £500k price tag is that there is something really, really wrong in this housing market.
“Sputh Kensington” is definitely NOT in South London. He probably showed you a flat in “South Kennington” i.e. Stockwell. Arf.
Hooper Reeslink02/03/2014 2:36pm
I agree with the majority of what has been written. The Credit Crunch only impacted a small minority of the population and we did not allow the market to correct itself and it has been propped up.
What we are seeing now is a combination of pent up frustration from those who thought they may have lost their job but have come through unscathed and a shortage of supply because builders haven’t been developing. This is exacerbated by the attraction of London as a safe haven and exchange rates.
But is it a bubble? A bubble suggests that there will be some form of radical correction but what I cannot see is what might cause this. Interests rates may well slow things down but in my opinion it is far more likely that the London market will slow down or stall as other parts of the country experience price inflation rather than a crash.
Not sure that raising interest rates will subdue the London housing market. It will only weigh on mortgaged home owners…..Generally those outside of the M25. Raising interest rates will see a strengthening in the BP which is likely to encourage more foreign cash buyers into the “safe haven”. In order to target the part of the market fuelling the bubble the government should consider something like a foreign buyers tax.
Nice, I’ve had the same experience in east London, all first time buyers or landlords buying. Closed bidding, landlords with cash bids blowing all others out. Open days with dozens of people. It’s crazy, the vendors and the estate agents must be loving it!
We have been looking in Marylebone – current asking price vary from £1,500 psf to about £2,000 psf – so a fairly modest 2 bed flat is £1.5 – £2m depending on precise location.
When we say we have to sell our flat to buy, we are sneered at and advised that 90% of buyers are cash buyers and can exchange contracts within 48 hours! Madness!
Martin Stewart02/18/2014 7:35am
Andrew, you could do what everyone else is doing and try and keep hold of the existing property and rent that out. It only goes to perpetuate the problem of supply but it does seem to be every man for himself out there
David Van Chaney02/18/2014 8:54am
It sounds like our market here in Los Angeles just before the crash. As my realtor described it, “It’s like they’e throwing gold in the streets” such was the scramble to buy. I went to one showing where the tenants were both locked in long-term leases, way below market, which with L.A.’s draconian rent control laws cannot be broken. Anyone who bought was immediately upside down $3K a month on payments, in the best case, and could not move in themselves until the leases expired, and then only with a hefty relocation fee paid to the tenants (varrying from $8K to $18K.)
As I brought this fact up in conversation to the fevered novices trying to write their offers on the kitchen table, the realtor gave me one of the most evil looks I’ve ever endured.
We know how that story ended. And now, seven years later, we’re back to that again here in L.A. in the desireable neighborhoods (California moves in seven years real estate cycles.)
This never ends well for the buyers at the top. In real estate you really do have to be contercyclical. I liked buying when nobody wanted anything, and the difficulty was getting an appraisal because it had been so long since anything sold, there were no comps. That’s a buyers market.
And clever me, I still almost tanked when i ran up against the banks,the draconian rent control laws, and the evil Department of Buidling and Safety, which is our planning and permit agency, (They held up one rehab because they “didn’t like” the licensed engineer and architects’ plans I had submitted. The bldg. sat vacant while I sought another set of plans and calcs from another firm. Meanwhile, the bldg. sat vacant, a huge drain on my resources for 1 1/2 yrs. I still went bankrupt,. Fortunately, I filed right as Lehman Bros. dissolved, and the banks were all terrified and preoccupied, so I managed to survice better than expected. Chase bank did foreclose on a loan on which on I was current, but whose term had expired, a loan which they had gotten for free from WaMu when our FDIC “Sold” Chase WaMu for hundredths of pennies on thge dollar. They lost $600K off the balance when I was through with them, through court fees, lost rents, etc. They had to have the building so bad they let it fall into neglect and got cited by the City of Los Angeles while they were in possession. That also had a negative effect on the price at auction.
It’s gonna get ugly before it gets uglier.
Henry Malter02/18/2014 9:50am
This actually doesn’t sound that bad to me from what little I know about the history of London real estate. Of course “open houses” are the norm in US brokering. In the last bubbilicous bidding-war period in NYC-adjacent New Jersey (actually one of the most deranged and $$$ markets in the country) we looked at one moderately decent place – open house, mob of customers – and were told to submit an envelope not only with our “best and final” but also an original essay about why we deserved to buy their house…Yeah, we did it. I remember it seemed to be a Gay couple who owned it and so I discretely chatted up our respect and support for all that. It was not good enough – though I imagine $$ probably trumped the quality of the essays in the end – and some lucky “winning” bastard over-paid a couple of hundred thousand for that one. Speaking of “South” “Kensington”, the LA market is notorious for “adjacent” neighborhoods i.e Beverly Hills Adjacent – which means pretty much anything and nothing. Caveat Emptor.
Tyler S.02/20/2014 7:55am
The only correct response to a bidding war is to walk away. If you don’t, and you “win” the bid, understand that you have just been robbed.
Income Property Real Estate Alabamalink04/09/2014 3:46am
I am very glad to read such a great blog and thank you for sharing this good info with us.
penny auction for carslink05/15/2014 3:55am
you decide to jump in with an offer at least 5% below the asking price. Oh the arrogance of it all!
born and raised in London, just can’t afford to stay here.