‘What is the London housing market like post Brexit?’ is a question I’m being asked daily by clients, friends and colleagues.
Some of the press will have you believe Brexit or the current period of political uncertainty is the catalyst for the market down turn, but I’ve been advising clients that the market was slowing for over a year.
In my view, Brexit has just been one factor influencing the downward trend.
The market has changed a lot in the last twelve months. In 2014 and up to mid-2015, market confidence was high and Central London clients were knowingly paying more than a property’s value to secure it. The competition was fierce.
This was a period where we had very few down valuations. A down valuation in simple terms is when a surveyor advises the lender that a property is not worth what a buyer is offering for it.
Since mid-2015 my clients have been telling me it's easier to get offers accepted than previously and I have noticed clients paying a considerable amount less than the asking price. I would estimate that one in every five purchases that we're currently advising on is subject to a down valuation.
Initially a down valuation feels like a disaster for the buyer. Emotions are running high and clients can often feel they have fallen at the final hurdle. However, in the bulk of instances a down valuation can be a blessing in disguise.
Firstly, I ask the client – is it wise to pay more for a property than an independent surveyor, who carries out surveys in that area week after week, is saying it’s worth?
A small down valuation is easier to accept but a larger down valuation raises serious questions about the value of a potential home.
The property seller is left with a dilemma. Do they really want to start the process again if a compromise cannot be reached? How do they know the next survey will not return the same results? Will the chain they are on wait whilst they re-market the property?
Market confidence is another factor. How quickly can an agent find another buyer? I speak to business development managers from all lenders on a weekly basis and the over-riding message is that purchases are slowing but re-mortgages, particularly those with capital raising for home improvements are on the increase. The various housing reports support this. A good estate agent can guide the seller if they feel the reduced price is realistic.
As a buyer, you can appeal a surveyor’s valuation if you can provide evidence of three recent comparable sold properties, but from experience this is rarely successful and my clients have won less than a handful of appeals in my many years as a London broker.
Often the end result is that the client ends up paying less for the property than they planned to. However, if the seller is unwilling to drop their price to the lower valuation, it may be as simple as going back to the lender and asking for a higher LTV loan.
e.g. A house price of £550k with an 80% LTV would mean a mortgage of £440k.
With a down valuation to £520k, the 80% mortgage would not raise sufficient funds but an increase to 85% LTV would. Often this leads to an increased interest rate too.
If a lender will not lend more or a client is already at the maximum loan to value, they have to find the difference between the maximum loan from a lender and the purchase price from their own funds. From experience the Bank of Mum and Dad often step in to bridge the gap.
For me this is why it's important to consider using a mortgage broker. Arranging your mortgage yourself can be simple in theory but if you have complications along the way, having a qualified mortgage professional in your corner could make a huge difference both financially and mentally.