Morgan Stanley’s opinion is very well-respected in financial circles and their investment strategies are particularly successful. To dismiss what they say, out of hand, would therefore appear to be somewhat foolhardy. They say,
“Stagnation in the UK housing market is in fact due to asking prices being unacceptably high and out of kilter with what the market is currently indicating as being prudent and affordable price levels.”
At Property Match we believe that it’s largely the prices being suggested by agents (many of whom have been desperately trying to win increasingly scarce instructions from sellers) which have caused a dangerous double peak in house prices over the past three or four years.
If you forget about the supposed double dip, and look ‘at the other side of this particular coin’, you’ll get the real picture.
Doing this makes it possible to see that it is not the lack of available finance that is causing house price stagnation at all. Contrary to what is often printed, mortgage availability is fine. You can borrow up to 3.5 times a principal wage earner’s salary and up to 75% of the purchase price, over 25 years (provided you have a reasonable deposit saved up). No sensible borrower could wish for more. There is therefore absolutely nothing wrong with mortgage availability, at responsible levels of borrowing.
No, the other side of the coin is:
It’s asking prices that are what are misleading everyone, because they no longer bear any relation to the true economic position, especially following the recent economic melt-down.
Contrary to popular belief, responsible borrowing is demonstrably being supported by banks and building societies.
There isn’t a problem there, except when irresponsible requests for excessive borrowing are being tabled, and that is exactly what should be happening.
Finance is available, provided you make sure the price of the house involved is commensurate with economic reality, i.e. based on levels of earnings and sensible mortgage criteria based on such prices - not the prices currently being touted across the nation as being what to wish for!
Looking back at the reverse face of the coin for a moment, if people want finance to cater for unrealistic house prices, and UNrestricted credit is made available to developers and purchasers alike, once again, another calamity will materialise in the shape of over-priced houses and then suddenly - no demand.
Do we really want such negativity to ruin our favourite ‘market’ continuously? If we are responsible people we should say NO! NO! and NO again!
Instead, our company philosophy is; don’t believe a word estate agents have been saying about house values, because they’ve been over-valuing houses at market appraisal time in their headlong rush to win marketing instructions in a fast shrinking market. Things are slowly beginning to change though, as they are beginning to realise that this tactic does not manufacture sales.
They have been forgetting to advise their clients, diligently, about the current values actually attainable WITHIN THEIR OWN CLIENT’S time frame for selling. This is the reason for so many failed sales campaigns recently.
We say, if prices were ‘allowed’ to moderate, and find their market value again, then first-time buyers could get started by buying a property WITHOUT needing special treatment on loans.
The market utterly depends upon this happening but could simply re-establish itself from there. In the final analysis, this is the only way.
It’s like Peter Pan. Having lost his shadow he became unable to fly! Well, market value is the equivalent to Peter Pan’s shadow. Without it, the housing market can’t fly either!
If this analogy is not properly understood, the old boom and bust scenario will just keep rolling on, to the inconvenience of many, including the banks and building societies themselves.
It is true that it does mean accepting a short-term painful correction but we ask, is there really any other alternative at the end of the day? No, it will have to happen at some time or another.
Our suggested way forward, now, is for estate agents to have to justify their asking price aspirations, and if these should later be proved to have been wrong, then those agents involved should be held liable to compensate their own clients (if clients can demonstrate, in court, that they were misled by their agents). To effectively do this, agents may need to charge a fee for doing market appraisals.
We believe they should now do so, and they certainly could, if they wanted to improve the service they currently offer.
Posted by: Property Match (UK): The modern way to market houses