Property prices - when should first time buyers take the plunge

Steve Weisner - Independent Financial Adviser Radcliffe & Newlands

For most people, it is still a pretty bad time to buy a house in the UK. But not for long. House prices are falling at incredible speed. The crash in the 80s and 90s took many years to play out but if prices keep dropping at this pace then we could reach the bottom more quickly this time around.

If you are brave it is already possible to pick up what looks like a bargain at auction right now because there are so few buyers to compete with. I say ‘brave’ because we don’t know how far down the market will go and what looks like a bargain might not be.

Markets are generally cyclical and property should come back up eventually. After all, it’s never going to go out of fashion. Here’s what the latest report from Nationwide has to say:

“Nationwide has been measuring house prices since the 1950s. During that time there have been several cycles of rapid acceleration and rapid cooling of house price growth. One benefit of having such a long running data series is that we can clearly see that price movements at any particular point in time do not tend to say much about the long run trend. And, price movements from the peak to a trough of a cycle simply show the extent of the volatility in prices around the trend rather than anything more meaningful about their future path. The long-run trend growth in real house prices in the UK is around 2.7% per annum and there is no reason to expect that over the longer term house prices should not continue to go up in real terms, even if we are going through a sharp correction now.”
Nationwide, 2 October 2008

Where is the bottom of the market?

Markets tend to overshoot somewhat so we might expect the prices to come down below the long term trend line before going back up. If that happens this time then we should see average prices dropping below £150k before they recover.

A useful way to value property is to look at the yield. In the early years of buy-to-let yields were often 10-15% but as prices soared far faster than rents these yields fell to just a few percent. So one of the indicators that the market is returning to a sensible level will be higher yields. So don’t just look at property prices – check rental values carefully even if you are buying as a home rather than for investment.

Lower property prices won’t be with us forever and first time buyers in particular need to get on the ladder before prices start to rise again. You do not want to be competing with other buyers. Buying while the market is still going down puts you in charge of the negotiations. You might want to start making a shopping list of your requirements. You won’t have to compromise and you’ll have the pick of whatever properties are out there.

If you were to believe everything you hear from the media you would think that it was impossible to get a mortgage these days. Foolish media. Mortgages are harder to get and there are fewer of them to choose from but there are still products available. Talk to us first if you’re thinking of buying.

Steve Weisner
Independent Financial Adviser
Radcliffe & Newlands
5th Floor Crystal Gate
28-30 Worship Street
London
EC2A 2AH  

Tel: 020 7382 0437
Fax: 0207 374 0462
Email: SWeisner@myeggnest.com
www.rad-new.com

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