The Next Big Challenge

2009 has generally seen agents a little more positive, as activity levels have increased substantially in the last two months, albeit results remain average at best. However, a new and perhaps unforeseen problem has arisen.

Our latest battle is to curb the decline in the lack of property coming on to the market. We are 75% down on new instructions this year and that size of change is what encourages some agents to then overvalue property to build up their books. Of course, while this serves their own ends it does the clients a disservice and I repeat my recent message, DO NOT sign long-term agent tie ins!!! The agents asking you to do so are the same ones who overvalue and then batter you down during the time of their tie in having initially lured you with promises of a high selling price they have no realistic way of achieving.

You could argue that currently this lack of volume is helping. It's holding prices up, giving buyers less choice, which in turn creates some urgency allowing deals to be done. However, if it continues there simply won’t be the stock to allow the volume of turnover, which agents and the housing industry require. The route of the problem comes back to banking again. While it remains impossible to get a mortgage at a competitive rate unless you put down 20% deposit, buyers who want to move up market have a substantial shortfall in capital. Anyone who has bought in the last 3 or 4 years has had their equity wiped out by price falls and most of these will have put down minimal 5% deposits when they purchased. That means someone selling a £200k cottage wanting a £300k semi needs to fund £60k cash out of savings. It's a small percentage of people who have access to savings of that level and as such, a small percentage of people able to move.

Only two things can change this situation. Either prices have to increase substantially again, unlikely in the short term or banks have to lend more competitively at higher percentages - at least up to 90%.

With that in mind it was encouraging to hear the Government lining up the now nationalised Northern Rock as a mortgage lender again. Nobody expects or advocates banks to lend as rashly as they had been doing, but 90% loans on prices that have dropped 20%, I would suggest no longer represents high risk lending. It's the equivalent of a 70% loan a year ago, which any lender would have considered good business. Maybe there's a competitive opportunity here for a lender. Particularly as I'm sure such a percentage would only be available to those of proven credit worthiness.

If a couple of others follow the Northern Rock lead, this could really add a much-needed boost to the housing market or am I getting carried away?