Q&A: BUYING
Q. Dear Camilla, I’m looking to buy a property but have we reached the bottom of the market or do prices have further to fall?
A. Prices have fallen between 15 and 20 percent since the peak of the market, which was March 2008 for London. At the beginning of this year most analysts were predicting that the market had further to fall by between 5 and 10 per cent, depending on whose research you were reading.
However from about the middle of February onwards we have noticed a substantial increase in not just enquiries and buyer interest but actual transactions have started taking place. Agents have started reporting that enquiries are up and stock levels are between 30-50 per cent less compared to this time last year.
There is a severe lack of stock, especially in the prime areas and price range of £800,000 to £3m, which is where a lot of investors are buying at the moment. Also, people who have been in rented accommodation and have saved up for a deposit are taking advantage of very low interest rates, which makes the market very competitive.
That kind of demand coupled with lack of supply will put a floor in the market. In our opinion, prices are approaching the bottom and 2009 will see the low point for prices. So, if you see the right property and the one you want to buy, don’t wait for prices to fall even further – they may not.
But I don’t think we’re going to see a recovery that quickly and prices will remain flat for the rest of the year. I think that in 2010 we may see some very modest growth in prices but we’re looking at 2011 for the recovery.
Q. Dear Camilla, I’m considering buying a property with a short lease but I’m concerned about the implications of buying such a property. Is it a reason not to buy?
A. First and foremost, buying a property with a short lease shouldn’t deter buyers. People are put off because they don’t understand what leasehold means – this is especially true for foreign buyers. I think once you understand what leasehold means, it could be suitable for some people.
They are attractive because you get to buy a property that you perhaps wouldn’t otherwise be able to afford – a short lease drags down the value of the property. Once you have owned the property for two years, you have the legal right to apply for a lease extension and enfranchisement, which cannot be refused. You do not have to apply immediately but can wait until you have owned the property for, say, five years, and saved up enough money to purchase the lease extension, the length of which will be a case of negotiation between you and the freeholder.
But as the lease gets shorter and shorter you do pay more to extend the lease – if the lease has less than 10 years to run, it will effectively cost you the same amount as buying the property all over again.
Another advantage of buying a property with a short lease and extending it in this market is that the price you pay for an extension is dependent on the market value of your property. We would always recommend that you engage the services of a leasehold reform expert to represent you and your interests in these circumstances.
However, if you are taking out a mortgage to buy a property with a short lease, you need to check the terms of your mortgage carefully – many lenders won’t lend on properties with a lease less than 50 years.
Camilla Dell is managing director at search and acquisition consultancy Black Brick. www.black-brick.com