What makes your property increase in value?

Watching property prices in Britain is like riding a rollercoaster, one moment you are at the top, the next flying right down to the bottom. Since 1975 prices have increased approximately 3% per year. There were periods of ‘dipping’ such as the early 1990’s and 2008. The prices fell dramatically in this year, leading into a recession caused by the cataclysmic credit crunch.

During the ten year period between 1997 and 2007, property prices rose and fell slightly. What makes these small and sometimes quite dramatic fluctuations?

The main factors which influence property prices are: 

Property supply and demand

There are literally thousands of property markets within the UK; they all contribute to the overall ‘average’ house price surveys. All average house prices are ‘statistically’ average and not based on a specific property that actually exists.

The effect of supply and demand has quite a profound effect upon the market, for example, if we have three potential buyers all looking for a semi- detached Victorian house, and we have only one on the market, the buyers are likely to compete to secure that property. This will in turn increase the property price. On the other end of the scale, a developer down the road may have twelve new properties to sell and only six potential purchasers. He will keep lowering the price until they are sold.

Prices will always rise in the long term, due to the fact that we are an ever-increasing population. The population is rising faster than the number of properties already available and more than the number of homes currently being built.

Unemployment and Confidence in the market

The threat of unemployment or even unemployment itself can have a huge impact on property prices. We are constantly bombarded daily by the media on how dire the economy is. We are told wages will be frozen and homes are to be repossessed. No-one is going to feel confident enough to purchase a new home that may either lose value or if made redundant, mortgage repayments that can’t be met. During this period prices tend to fall.

The reverse is true in a booming economy, falling unemployment and rising property prices, boosts confidence. At this time property prices tend to increase, sometimes quite dramatically.

Property affordability

In times gone by (prior 2000) lenders would let you borrow between two and half times a joint salary or three and a half times a single salary to purchase a home.
Then came so called ‘Irresponsible lending’, where you were lent more money to buy that even more expensive property, one that may have previously been out of your league.
In the previous recession when house prices fell, people couldn’t afford a mortgage due to interest rates being high, raising as much as 15%.
This recession, rates have been at an all time low, lending has not been as readily available, but there has been some movement in the property market.

Throughout the good times, the economy blossoms, financial confidence grows and house prices rise. If a first time buyer couldn’t afford a deposit, there would always be a parent or relative to either lend or give them the money required.
Affordability has a major impact on allowing property prices to rise; low cost money available has meant that property prices have kept rising, where as normally they would have fallen.

To summarise, prices are affected by the actual number of purchasers and sellers, the type of property being sold matching the type desired. This is then all affected by whether people can actually afford to purchase, overall confidence about the economy and job security.

The Budget

News is just in on the budget, I have just logged into the Times on line to see their slant on the budget. Rebecca O’Connor reports.

Buyers of homes worth more than £1 million will be hit by a new higher rate of stamp duty of 5 per cent from next year to fund a temporary scrappage of the tax for first-time buyers, the Chancellor said today.

Alistair Darling said he would use extra revenue from sales of the most expensive properties in the country to fund a simultaneous increase in the lowest threshold for stamp duty of 1 per cent from £125,000 to £250,000 for the next two years to help first-time buyers.

Buyers of homes worth more than £500,000 currently pay a rate of 4 per cent.

On a property worth £1 million, the stamp duty bill will rise from £40,000 to £50,000 from April 2011. For a first-time buyer of a home worth just under the new 1 per cent threshold of £250,000, the bill will fall from £2,500 to £0.

However the concession, to be introduced for any purchase completed from tomorrow and before March 25 2012, will only apply to first-time buyers. Home movers who are buying property under the £250,000 threshold will not benefit.

The definition of a first-time buyer will be someone who has never previously bought a property.

The move will be viewed as another tax on bonus earners and cash-rich investors, who have dominated the top end of the housing market for the past year.

The impact of the tax is expected to fall disproportionately on buyers in London and the South East, where 81 per cent of properties worth more than £1 million are concentrated.

Nicholas Leeming, commercial director of Zoopla.co.uk said: “Taxing the rich makes a good headline, but it won’t raise much money for the government’s fiscal black hole.”Only around 3000 homes sold above the £1m mark in the last year.

For a first-time buyer of a home worth just under the new 1 per cent threshold of £250,000, the bill will fall from £2,500 to £0.

The stamp duty holiday on properties worth between £125,000 and £175,000, which ended at the end of December, helped around 260,000 buyers, the Chancellor said.

Housing market experts welcomed the threshold increase, but said it would be of limited use for first-time buyers who are struggling to raise a deposit.

Housebuilders welcomed the move as a boost to the industry, which has struggled to sell homes to first-time buyers for the last two years. Melanie Bien, director of Savills Private Finance, the mortgage broker, said: "'We welcome the doubling of the stamp duty threshold for first-time buyers to £250,000 which should make a significant difference to the majority, who are struggling to get on the housing ladder. But while every little helps, they still need to raise a sizeable deposit to buy their first home. “Greater relief from stamp duty will be a confidence boost to the housing market, helping to ensure the housing recovery does not stall.”

 

Is size everthing?

I have just read an interesting article in the Mail. It caught my interest especially as I have been moaning about how small my new home is….This week, it was revealed that a former London broom cupboard - now a 60.5sq ft micro-flat - in Knightsbridge has been valued at up to a staggering £200,000. That's for a property that's smaller than a full-size snooker table.

 Daft? Perhaps. But it does have one major selling point: its local shop is swanky London department store Harrods. This places it in the heart of one of the capital's hottest locations, with Hyde Park on the doorstep and where even relatively ordinary flats regularly carry a multimillion- pound price tag. 

But is it really worth investing in a property little bigger than the average prison cell, even if it does come with one of the country's most desirable postcodes?

Well, that depends on what you're after. While small studio flats in London's best areas can go for less than £200,000, they're little more than tiny pied-a-terres, and are unsuitable for anything more than a single, and very tidy, resident.

But they are a worthwhile option for those willing to sacrifice space for a posh address or people who work in the capital but have a main home out of town. Indeed, by buying a weekday bolt-hole, commuters can save a fortune on travel costs and time.

According to the Land Registry, the average property price in Kensington and Chelsea is a mind-boggling £821,496. It has a designer kitchen and bathroom, an entertainment system and a truly fabulous address. There's even a window.

The only catch? The living/kitchen area is 10ft by 8ft, with the bed on a mezzanine. Cluttons has a slightly more spacious studio on salubrious Sloane Avenue. On the market for £225,000, it is under offer.

Again, size is limited: it features a 16ft by 15ft living/ kitchen area with a separate bathroom. But for location, it's more or less unbeatable.

Studio flats are often very small, but upmarket areas benefit from a strong market, making any property within them a good investment. In some Central London areas, prices are almost back to where they were at the peak of the market.'

While national property prices have increased by 5.2 per cent in the past 12 months, Kensington and Chelsea has outperformed, rising by an extremely healthy 11.2 per cent. Marylebone, north of busy Oxford Street, has one of the capital's most idiosyncratic shopping streets and is another good bet.

 

Hips 'unsatisfactory'

I have just picked up one of the many legal publications that arrive monthly onto my desk.

An interesting article caught my eye.

 

Almost a third of estate agents provide unsatisfactory home information packs according to a survey by Birmingham Trading Standards. Results of the study carried out at the end of last year revealed that, of the 37 packs examined, 70% were rated satisfactory or reasonably satisfactory, and 30% rated unsatisfactory when measured against the HIP regulations.

The most common faults included: no information provided on the complaint or redress procedure; no consumer information; no company contact details; technical issues with the search; and HIP index-related issues.

 

This comes as little surprise to me that a third of all HIPS were found to be below par. As they have no value to the buyer, they were always going to be done on the cheap.

In my opinion instead of upgrading them, surely the government should scrap them instead.The packs were supposed to hurry along the buying process, as they contain all of the property details, searches and an Energy Performance Certificate in one place. Unfortunately much of the documentation in the HIP is out of date on the day that it is produced and hence there is no cost saving as the purchaser needs to renew this documentation, leading to a duplication of costs.

The government has been accused by the Conservatives of stifling the property market with yet more red tape, creating a headache for those wishing to sell their homes, in an already tricky market.

 

 

A future with no keys?

I have recently converted to an iphone and now I wouldn't be without mine; so an article in the Sunday Telegraph entitled 'Introducing the iKey: Apple's answer to the humble door key' grabbed my attention.

Apple are developing technology, nicknamed the "iKey", which will mean that rather than carrying around a bunch of keys, people will be able to use a single electronic device to unlock their car, front door and gain access to their office. You would simply have to enter a pin code and wave the device over an electronic pad fitted beside a door to open it. According to the article Apple have already filed the application with the US Patent Office and the application states: "The device can communicate with an external device to open a lock. By way of example, the electronic device may be a model of an iPhone".

Apple hope to replace cards and keyfobs by allowing the iPhone to be used instead to unlock doors to buildings and cars. In a home, householders would need to install electronic, computer controlled locks to their doors. The iPhone would need to be registered with the locks so that they could communicate with each other. By rotating the iPhone near the electronic lock, consumers then select their pin numbers on a dial displayed on the screen, as if entering a combination on a safe. If the combination entered matched the one held by the electronic lock, the door would open. If not, an alarm could be sounded or alerts sent to the householder to indicate someone was attempting to gain unauthorised entry. The patent also proposes encrypting any information that passes between the iPhone and the computer-controlled lock to prevent hackers from "listening in".

I thought that keyless systems for vehicles through key fobs would never catch on and I was wrong there - but no more keys? After reading the article on the iKey, it doesn't seem that it won't be long before conveyancers could be emailing pin codes out to clients on completion days rather than letting them know that their keys are ready for collection.

Are we double dipping?

After a disastrous welsh defeat on Friday, I decided to ignore all sports news and concentrate on that subject that is so close to my heart… property! My two year old, after being given chocolate, (hopefully his mother won’t read this) settled down just long enough for me to peruse the musings of David Smith.

 Are we double dipping? David asks. The Nationwide reported on Friday that prices have fallen by 1% this month (it takes its readings from the middle of the month), after nine consecutive increases. The market is still 9.2% up on a year earlier, but could this be the beginning of the second leg of the house price fall?

The article went on to say that, according to the Bank of England monetary policy committee’s expert, the recent strength in house prices were unlikely to last due to mortgage lending still being so restricted. She claims that she was surprised by the strength in housing figures last year. David Dooks, head of BBA’s statistics, tell us that it was no surprise to see the January mortgage figures falling back from December; transactions were being pushed through to beat the end of stamp duty relief. The bad weather further suppressed market activity.

 The Land Registry reported a 2.1% jump in prices for January, although its figures are regarded as more backward-looking than Nationwide, since they come at the end of the house-buying process. Approvals should bounce back over the next couple of months, but the strong upward trend of most of last year was beginning to tail off even before the snow struck. That fits with other evidence that the supply of mortgages, having come back from its lows, is unlikely to rise much this year.

In my opinion, prices may well plateau this year.It is hard to see any wild swings in house prices coming up. This stability is no bad thing. After the roller-coaster ride of the past couple of decades, a period of consolidation could be just what the housing market needs.