Simon Jackson: The Market Is Toasty But Not Overheating

First published by Financial Reporter

Introduction

Reading some recent newspaper stories about ‘heat’ in the current housing market, understandably puts the focus on surveyors in terms of valuations and how we work within a market where – according to the latest data from NAEA Propertymark, – 16% of properties sold for more than their asking price in March.

Current state of the housing market

The first point to make around this is that properties being put up for sale and vendors accepting offers quickly is not by any means a sign of an overheating marketplace. Nor is it evidence that the amounts being agreed are necessarily over-inflated or that we are currently in a cycle where potential purchasers are ignoring the asking price, feeling quite happy to put in offers 5/10/20% above them.

For a start, if those purchasers are putting in those offers and they are reliant on mortgage finance to fund them, then unless the surveyor sees plenty of comparables to justify those over-asking price offers, then the likelihood is something is going to give.

The value is not going to come back at the same price as the offer, at which point the purchaser is either going to have to put in more cash as equity, or they’re going to need to find a higher LTV mortgage.

Alternatively, and I’ve seen this in the past, purchasers have used bridging finance to secure themselves the property, then when this sale is registered by the Land Registry, they seek to refinance with a prime lender. All in order to be able to pay the higher offer amount they have tabled. It’s clearly do-able but I suspect large numbers of borrowers would not be willing to go there.

Surveyors roles in the current climate

However, back to the point about a ‘hot market’ and our role in it. Recently surveyors have been the subject of some industry ‘gossip’ that there’s some kind of conspiracy going on between us and lenders. That we are engineering ‘down valuations’ in order to protect our own roles in the process and to risk mitigate for lenders.

The fact of the matter is that the value of a property is the value. Some might argue it’s what a purchaser is willing to pay a vendor irrespective of their personal motivation, but if there are no comparables to support such an offer, then it’s not going to be our surveyors’ view that this is the right value.

Take some examples from the recent past, within markets deemed to be hot. London tends to be a good example and I’ve certainly seen periods – not so long ago it has to be said – where offers were being put in far and above the asking price. Sealed bids were then called for and, it was not uncommon for the vendors to open those to find offers 25/30/35% above asking price.

Again, at the point when the surveyor comes in to value those properties, unless – having duly considered market trend – we can see comparables to support those offers, that’s not going to be the value. However agents, for example, might like to spin it, a sealed bid is not a comparable – once a sale is registered, it might be used as a comparable, and this is how the market moves forward.

Concluding thoughts

There’s no doubting this is an active market – we only have to look at the level of our work, and the time it’s taking to get from marketing to sale agreed looks like it’s been dropping significantly in recent months. There are many reasons for this of course including coming out of lockdown, the roadmap being hit, suggestions that the economy will recover quicker and that more people will move from furlough back to employment rather than lose their jobs, etc.

This all improves consumer confidence, and when you also add in a greater desire to live in certain parts of the country or to seek out properties with certain types of amenities/services, the ability to go and view new properties etc, you can fully understand why property coming to market is in demand – supply is still not great – and fundamentally why prices are rising steadily. Interestingly, many of the predictions of zero growth in prices, or falls, have now been jettisoned – I don’t see anyone predicting this for the rest of 2021.

The market is busy yes. Is it overheating? I don’t think so. Neither do I think it’s a bubble that might pop when the stamp duty saving finally comes to an end in September. That will take some of fizz out and return it to perhaps steadier levels. Until then we should anticipate strong activity levels and a busy period for all.

Simon Jackson, Managing Director at SDL Surveying

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