For some time now people have been saying, “Property prices certainly cannot go up and there will soon be a downturn. But the prices continue to rise.
They will continue to do so as long as there are fewer homes being built than there are people willing to buy and as long as gazumping can persist.
Even with the rising cost of living, house prices continue to rise. As affordability tightens, the upside may slow down a bit, but anyone looking for lower prices is probably being overly optimistic. In fact, given the evolution of the housing market, it is possible that prices will double over the next 20 years.
Gazumping made an unwanted comeback
The result of higher costs is often an incentive for people to stay put and not move, and instead carry out renovations and extensions. However, this further restricts housing supply, adding inflationary pressure.
Estate agents have seen first-buyer-style two- and three-bed properties sell very quickly, but five-bed properties are staying on the market longer.
Lenders are clearly starting to worry about affordability, with many starting to withdraw offers and tighten affordability calculations.
The “conditional sale” is both immoral and illegal, but still present
If lenders lower rates on unreasonably short notice, the impact for borrowers is long-lasting. This can delay the home buying process while the borrower seeks additional financing, typically increasing their purchase costs and further increasing their cost of living. Additionally, any delays for the borrower may also cause the seller to accept a later higher offer for the property.
To help stop the runaway escalation in property prices, the home buying process needs a radical overhaul and the government must take urgent action. Gazumping has made an unwelcome comeback as competition for homes has increased.
Changes to the home buying process should include the reintroduction of seller’s packs, completed by a seller with all research done, with standards that all sellers and surveyors must meet.
At the same time, an accepted offer on a property must be legally binding, with a penalty paid by either party if they later back out of the deal. This would significantly reduce the incidences of gazumping and ensure that any price increases happen more slowly.
Given the evolution of the housing market, it is possible that prices will double in the next 20 years
Apart from the process of buying a house, it is necessary to boost the supply of new housing. To do this, there must be incentives for smaller developers to build more. There are many smaller plots that are not of interest to large home builders, but which would greatly contribute to the housing supply in existing towns and villages. It also adds to the character of an area, as smaller builders usually bring a more unique style to the homes they build.
The challenge is that, as many developers look for opportunities, they struggle to find deals or funding. In development finance, the loan-to-value ratio is often restrictive, prohibiting many small developers from building. This too requires the attention of the government.
An accepted offer on a property should be legally binding, with a penalty paid by either party if they later back out of the deal
Another issue for buyers and brokers is that realtors will not allow a borrower to make an offer on a property unless they meet with the realtor’s in-house mortgage broker. Called “conditional sale”, it is both immoral and illegal but still present.
The real estate agent will usually say that they have to financially “qualify” a buyer to allow them to use their own mortgage broker instead of one with whom the buyer already has a relationship.
However, certain steps can be taken to deal with this practice, and every broker should encourage their clients to do so if they have been exposed to these aggressive, high-pressure tactics.
There must be incentives for smaller developers to build more
First, the broker should write to the real estate agent, providing information on a tentative mortgage decision to demonstrate that the client has the funds to purchase the home and therefore financial qualification has been completed. The letter may respectfully remind the agent of the Realtor Act, with an offer to provide additional financial information if needed.
If the realtor ignores the letter or continues to pressure the buyer, the next step is for the client to put it in writing to their broker, and for the broker to forward it with a letter to the Property Ombudsman. .
If all brokers do this, it should create enough pressure that it is no longer possible for real estate agents to engage in these suspicious practices.
Karl Wilkinson is general manager of Access FS
This article appeared in the May issue of MS.
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