The last few weeks has been surreal for anyone involved in the property market. In February, property transactions were progressing well, and the London market was enjoying a rejuvenation in the aftermath of Brexit. By mid-March, buyers were starting to feel nervous, and by the end of that month, the property market had come to a grinding halt. No more viewings, no more offers, existing transactions on hold. No-one was moving anywhere.
Even in the deepest, darkest moments of the credit crunch, we didn’t see an almost total closure of the property market quite like we’ve experienced in recent weeks, which makes it almost impossible to predict what might happen next.
What will property be worth?
So, what is our guidance for buyers who were proceeding with an agreed sale before the shutdown happened? When markets re-open, do they stay true to the agreed price, try to negotiate a reduced price, or should they pull out altogether?
Ultimately a property is worth whatever a buyer is prepared to pay for it. That will be driven by their own personal circumstances (such as how stable their income is), and how much that property means to them – whether as a home to live in, or an investment for the future. It will also be affected by how desperate the seller is to move on. This set of conditions will differ from property to property, which is why we rarely see a dramatic crash in property prices. Many property buyers will remain emotionally or financially invested in their purchase, regardless of the short-term wobbles. To illustrate this, it took the London property market 15 months to bottom out after the credit crisis in 2008.
The 2008 crisis suggests average property prices could fall up to 15/ 20%. It will be hard to persuade a seller to knock that off the asking price – especially since the market was already subdued in the wake of Brexit. If you are wedded to buying the property, we would suggest a more realistic 5% discount. That said, every situation is unique, so if you happen to know the seller is desperate, then go for a bigger reduction – especially if you were nearing completion before the lock down. If the seller is happy to stay put, but you really want the property – stay close to the original asking price.
Adopting a ‘wait and see’ approach
If you would prefer to wait and see what the future holds, then be aware that markets can recover quickly once certainty is restored. Before the lock down we were seeing a huge amount of pent up demand in London in the wake of Brexit, which turned a buyers’ market into a sellers’ market practically overnight.
We never recommend trying to predict the bottom of the market. The key with any investment is to think of the long term. If you are planning to buy a property and keep it for at least 10 years, then the immediate economic concerns become less relevant. Looking again at what happened during the credit crunch. Even if you had bought a London property at the very peak of the market at the end of 2007, just before the financial crisis hit, your property would have risen 60% in value over the following 10 years. That’s despite the market falling 18% in the intervening period.
Only you know how important your property purchase is to you. We believe whole heartedly in the long-term value in the London property market, so if you are in it for the next 8 to 10 years, we suggest sticking to plan and making the most of the incredibly good lending rates in the market.
If you would like to invest in property, and would like to discuss some of these findings in more detail, please email me at firstname.lastname@example.org