Chris Blackhurst: 'Ghost gazumping' and other estate agent tricks are inflating house prices – but lack of new homes is root of the problem
Midweek View: They were nice, terraced houses in a smart area. And they were commanding silly, frightening sums
Three tales from the London property front-line. A friend offered the asking price, £680,000, for a house. She was getting divorced, her finances were tight, but the house was ideal for her and her children. It was all she could afford. Her offer was accepted.
Everything seemed to be going perfectly, until, just before contracts were due to be exchanged, the seller turned round and whacked another £70,000 on top of the price. She had to pull out. No matter that she thought she had a deal, had employed solicitors, and had wasted a great amount of time. The vendor thought it was worth more. No apology, nothing.
Exactly the same thing happened to a couple I know. This time, it was £20,000 extra. Even though they could pay it, they refused – on principle and because, as they said, they had no way of knowing if £20,000 would be the end of it or if they'd have to find some more next week.
At least they found properties to buy. Another couple I know gave up because nothing suitable was coming along. They'd spend hours scanning Rightmove, looking in estate agents' windows, calling them up, and every time they enquired about something that took their fancy, they'd find it had already gone. They're now renting.
This is a crazy, alarming period. As I drove in this morning, I could see the estate agent's board in Fulham, west London. Every one of the houses on show was priced at upwards of £1.5m, and the most expensive was £3.55m. But they weren't overwhelmingly huge. They were nice, terraced houses in a smart area of London, albeit with their lofts converted and basements dug out. And they were commanding silly, frightening sums.
As well as those tales, others abound: of sealed bids that aren't really sealed, where the agent reckons on who can pay the most and tips them off how much they will have to stump up; of agents who will contact vendors whose properties have been under offer for some time but progress has been slowed by the chain, and suggest they switch to them because they can get a higher price; of the return of gazumping.
The latest version of the latter practice, of jacking up the price just before contracts are exchanged, has its own name, "ghost gazumping", because there is no rival buyer. It's horrible, but unlike my friends, the purchasers pay up – usually because they're too far down the road to begin all over again, and they're aware that prices are rising, so if they go back to the start they will have to pay more anyway.
It does not matter that there is no alternative buyer. Such is the condition of the residential property market that the vendor knows there won't be a shortage. The statistics support the fact that they've got purchasers by the short and curlies: for every new instruction nationwide, there are eight buyers chasing it; in London, that figure rises to 13 sets of folk after every one.
According to a report from Sequence, owner of more than 300 branches of estate agents around the country, the average UK house price has increased by 12 per cent annually. Sales are also rising, up 17 per cent annually and 7 per cent month-on-month.
According to the firm's data, the average house price is now £207,412. But in London, where prices are up 22 per cent annually, the average price is now £441,256.
Still, they keep on buying. First-time buyers are not being put off by the house price rises, and mortgage applications from first-time buyers were up 7 per cent month-on-month in February, and up 13 per cent annually. Sequence says new buyers are flooding the market.
Put simply, demand for housing far outweighs supply; there is a chronic shortage of homes available to buy. What's alarming is that stunts are being pulled that did not occur even in the property bubbles in the 1980s and mid-2000s.
Two factors have combined to produce the new, aggressive tendency: a Bank of England that is determined to hold down interest rates and to keep on holding; and a lack of new housing stock.
At some point, surely, rates will rise, and those who overborrowed, among them speculators, will get burnt. But the underlying, structural problem will remain: there are not enough homes to go round.
In his Budget today the Chancellor, George Osborne, is expected to confirm the extension of the Government's Help to Buy scheme until 2020. After he trailed it on Sunday, the share prices of the UK's leading housebuilders soared – more than £500m was added to the market capitalisations of the companies, including Persimmon, Barratt Developments and Taylor Wimpey.
But while Help to Buy has fuelled an already heating property market, accounting for 25-30 per cent of all transactions, according to Liberum Capital, it has not been met by a commensurate lift in housebuilding. All it's done is to boost the profits of the developers – hence the surge in their share prices.
Under the system, buyers of new-build homes receive assistance with their funding. The expectation in the Treasury was that those incentives would encourage the builders to get building. That hasn't occurred, however. Housing starts last year were up 23 per cent. While that may appear like a good result, it's actually a third below the pre-credit crunch, 2006 level.
The builders have adopted a winning strategy. They know that 240,000 homes have to be built in Britain each year, just to stay abreast of population growth. They're not achieving anything like that. They know demand will outstrip supply. They know, too, that Help to Buy will push up that demand still further; while low rates will ramp it up still more.
With Help to Buy so far, the developers have been able to sit back and watch prices rise, not exert themselves and take too much risk by building lots of additional new homes, and collect the profits – so much so that they've been returning cash to shareholders. The Government is wise to this and it's likely they will come under pressure to build in the next six years.
Asking politely, however, is not enough. Instead of Help to Buy, ministers should have opted for a Help to Build plan. The housebuilders argue that if they build too much, land prices soar, and that undermines their property margins. There is a simple, quick solution to this, one suggested by the Institute for Public Policy Research in 2012: slap a land tax on all undeveloped developable land worth more than £2m.
Labour is promising something similar. Ed Miliband has said a Labour government would threaten developers with a use-it-or-lose-it ultimatum, allowing councils to buy back land or fine the owner for not developing it.
There has to be a quid pro quo, though. The planning system has to be simplified and speeded up. Councils and government have to provide more carrots to developers to build in less-affluent areas, where much of the empty land lies.
One solution is for councils to stop holding out for cash for sites, but to let the builders have them for free – and then share in the proceeds once the new homes are built and sold.
Something must change, and urgently. The property industry has to be told: stop playing your unscrupulous games, quit believing in ghosts.
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