Sellers pay a price for not facing home truth

ERIC CANTONA, his pregnant wife and his son were evicted last week from their rented home in Manchester. His club, Manchester United, wanted to buy the house for him. But the landlord held out for a higher price than independent valuers reckoned it was worth.

Money will soften the blow for the Cantonas. But for thousands of families, the difference between what buyers are prepared to pay and what sellers expect to receive is keeping them out of the homes they want.

And this paralysing expectations gap is widened by self-interested attempts of the housing industry to talk up the market.

Last week the Halifax, Britain's biggest mortgage lender and flagship of the building society industry, was clinging for the time being to its forecast of a 2 to 3 per cent rise in house prices for this year. This was despite reporting a 1.5 per cent fall in the year to March and admitting that without more activity in the market, the forecast would eventually have to change.

But more and more voices in the City and beyond are saying the talking- up has to stop. Every time housing market gurus predict prices rises are just around the corner, sellers raise their hopes. Like Cantona's landlord, they hang on for a higher price and lose a sale - then end up with the property on their hands for yet another year. In the meantime, the frustration of those entangled in chains of would-be buyers and sellers continues to grow.

Worse still, the forecasts of higher prices encourage the estimated 1.2 million home owners with negative equity to believe that if they wait long enough, they may be rescued from any loss on the sale.

"All this talking-up goes on, but every estate agent in the country is seeing an absolutely flat market and volumes down on last year," says John Carolan, chief executive of Black Horse Relocation, part of Lloyds Bank.

His counsellors have the task of breaking the news to as many as 5,000 relocating employees a year that their houses are not worth what they expected. "When people are reading everywhere that prices will improve, it's very difficult for us. In extreme cases, they refuse to sell and refuse to take the new job. Is it really in the best interests of the industry to talk things up?"

Peter Toeman, banking analyst at Hoare Govett, calls attempts to inflate the market with hot air "lunatic". Others agree. "All the pseudo-pundits at the estate agents and the building societies have an enormous vested interest in talking the market up and they all own houses themselves," says economist Ian Shepherdson at the Hongkong & Shanghai Bank group (himself a home owner in Blackheath, south London, where prices are falling).

Shepherdson cites the estate agent Savills, which last year predicted rises of more than 10 per cent countrywide, and the frantic bidding-up of land prices by smaller builders last summer. He says false expectations create a risk of market failure, where the gap between over-optimistic vendors and those who know it is a buyer's market becomes too great to bridge.

But leading lenders still feel obliged to boost morale. "Why do you think the Halifax is so slow to cut its forecast of a house price rise this year? Because it's their job to make home loans," says John Wriglesworth, head of strategy at Bradford & Bingley, and no stranger to bullish forecasts in the past.

But even Adrian Coles, director-general of the building societies' trade association, the BSA, now admits: "We have had a succession of false dawns, after the Gulf war, after the election in 1992, and then last year. Every time, vendors tend to start holding out for more."

The illusion may briefly cheer estate agents and feed bloated marketing budgets for bank and building society managers. But it means misery for families trapped in homes that no longer fit.

Fiona Biddiscombe, partner in the independently owned Parkers estate agency, operates in Lower Earley, a suburb of Reading that exploded during the 1980s into the second largest area of new housing in Europe.

Many of those who bought tiny, one-bedroom, gardenless starter homes here are imprisoned in them now that today's first-time buyers can afford bigger houses and ignore the bottom of the market.

Mrs Biddiscombe says: "I valued a one-bedroom maisonette recently that a couple had bought in 1990 for £60,000. Last spring another agent valued it at £48,000. The owners saved like mad to raise £12,000 to bridge the gap, and they did it, eventually. But if they had been able to arrange a £12,000 loan last spring, they would have done far better to have put it on the market then. Now we'd put it on the market at £43,950 and perhaps sell at £42,000. The wife nearly fell through the floor when I told her, and said she'd have to go to her father for the money."

Mrs Biddiscombe says hopes of better prices stop people in negative equity from facing the miserable truth that they will not be able to move until they save or borrow enough to bridge the gap between the diminished price of the property and the mortgage. If they delay too long, even in order to save, the gap may get larger.

"It's so easy not to bite the bullet and hope for something better if the experts are encouraging you. We insist that a seller is realistic about price and has plans for dealing with negative equity before we take a property on," she says. "After all, there are lots of loan schemes from the building societies, for example, where you can transfer the deficit as a loan against the new property. Or sometimes the owners' parents help out - we had one father who increased his own mortgage to help his son and the German Shepherd dog move out of a flat with a tiny garden. But plenty of agents will talk higher prices and put the property at the market at an unachievable price."

Quite apart from the pain of extra loan repayments, it is tough for many of those who believed they were making an investment as proverbially safe as bricks and mortar to admit they have lost out. But avoiding the truth means perhaps losing more.

Although lenders' research suggests that most people still regard home ownership as a worthy goal, many economists believe that since the 1980s property boom, a profound behavioural change has taken place in much of Britain as people realise that house prices can crash as well as rise. Owning and moving has a cost that is no longer compensated for by the prospect of capital gains. Getting your foot on the property ladder is no longer an article of faith.

Most have heard about, if not experienced, repossessions, unsustainable debts, or borrowers trapped in unsaleable property.

The birthrate collapsed after 1964, so that the number of people in their late twenties, the usual time for buying a first house, has slumped. The legal framework for providers of rented accommodation has improved. Despite fast economic growth, job insecurity is perceived to be high - the so- called "feel-bad factor".

Households still have far more debt relative to their income than they did in the decades before the 1980s. The increases seen last year in parts of central London are "just people like the Sultan of Brunei and some others with City bonuses buying houses and holding them", says Ciaran Barr of Morgan Grenfell's economics department.

"It's unlikely to feed through to a wider market, because you probably don't sell a flat in Kensington for £300,000 and then buy in Birmingham."

From October, the Government plans big cuts in the level of state support for mortgage borrowers who lose their jobs - a change that many banks and building societies feel kicks away the underpinnings from much of their lending.

More immediate factors depressing the market include the last of a series of reductions in mortgage interest relief that took effect last week. Base rates are on a rising trend and the next rise is expected within the next two months.

As Gary Marsh, the Halifax's economist, points out: "Most house moves are no further than 20 miles, they are not essential to keep a job, and they can be delayed a year or two."

House prices are not going up any time soon. That may be profoundly good for the British economy, historically all too inflation-prone. But perhaps it is time the estate agents, the conveyancing solicitors, the lenders and all the others still equipped for a level of housing market activity that will never now return stopped deluding home owners who have suffered enough.

Sport
Thiago Silva pulls Arjen Robben back to concede a penalty
world cup 2014Brazil 0 Netherlands 3: More misery for hosts as Dutch take third place
Sport
Robin van Persie hands his third-place medal to a supporter
Van Persie gives bronze medal to eccentric fan moments after being handed it by Blatter
News
Ian Thorpe had Rio 2016 in his sights
people
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

PROMOTED VIDEO
News
scienceScientists have developed a material so dark you can't see it...
News
Monkey business: Serkis is the king of the non-human character performance
peopleFirst Gollum, then King Kong - now the actor is swinging through trees in Dawn of the Planet of the Apes
Arts and Entertainment
Blackman: Landscape of children’s literature does not reflect the cultural diversity of young people
booksMalorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Voices
Mrs Brown's Boy: D'Movie has been a huge commercial success
voicesWhen it comes to national stereotyping, the Irish know it can pay to play up to outsiders' expectations, says DJ Taylor
Arts and Entertainment
Curtain calls: Madani Younis
theatreMadani Younis wants the neighbourhood to follow his work as closely as his audiences do
Life and Style
Douglas McMaster says the food industry is ‘traumatised’
food + drinkSilo in Brighton will have just six staple dishes on the menu every day, including one meat option, one fish, one vegan, and one 'wild card'
Life and Style
Once a month, waistline watcher Suran steps into a 3D body scanner that maps his body shape and records measurements with pinpoint accuracy
techFrom heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Mario Balotelli, Divock Origi, Loic Remy, Wilfried Bony and Karim Benzema
transfersBony, Benzema and the other transfer targets
News
Soft power: Matthew Barzun
peopleThe US Ambassador to London, Matthew Barzun, holds 'jeans and beer' gigs at his official residence. He says it's all part of the job
Sport
Joe Root and James Anderson celebrate their record-beaking partnership
cricketEngland's last-wicket stand against India rewrites the history books
News
Gavin Maxwell in Sandaig with one of his pet otters
peopleWas the otter man the wildlife champion he appeared to be?
News
Rowsell says: 'Wearing wigs is a way of looking normal. I pick a style and colour and stick to it because I don't want to keep wearing different styles'
peopleThe World Champion cyclist Joanna Rowsell on breaking her collarbone, shattering her teeth - and dealing with alopecia
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

Day In a Page

Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

How Saudi Arabia helped Isis take over northern Iraq

A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

The evolution of Andy Serkis

First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

You thought 'Benefits Street' was controversial...

Follow-up documentary 'Immigrant Street' has got locals worried
Refugee children from Central America let down by Washington's high ideals

Refugee children let down by Washington's high ideals

Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
Children's books are too white, says Laureate

Children's books are too white, says Laureate

Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Blackest is the new black: Scientists have developed a material so dark that you can't see it...

Blackest is the new black

Scientists have developed a material so dark that you can't see it...
Matthew Barzun: America's diplomatic dude

Matthew Barzun: America's diplomatic dude

The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

Meet the 'Quantified Selfers'

From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

Five-star reviews are just the opening act for British theatre's first non-white artistic director

Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
Mrs Brown and her boys: are they having a laugh?

Mrs Brown and her boys: are they having a laugh?

When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor
Gavin Maxwell's bitter legacy: Was the otter man the wildlife champion he appeared to be?

Otter man Gavin Maxwell's bitter legacy

The aristocrat's eccentric devotion to his pets inspired a generation. But our greatest living nature writer believes his legacy has been quite toxic
Joanna Rowsell: The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia

Joanna Rowsell: 'I wear my wig to look normal'

The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia
Bill Granger recipes: Our chef gives raw ingredients a lift with his quick marinades

Bill Granger's quick and delicious marinades

Our chef's marinades are great for weekend barbecuing, but are also a delicious way of injecting flavour into, and breaking the monotony of, weekday meals
Germany vs Argentina World Cup 2014 preview: Why Brazilians don't love their neighbours Argentina any more

Anyone but Argentina – why Brazilians don’t love their neighbours any more

The hosts will be supporting Germany in today's World Cup final, reports Alex Bellos
The Open 2014: Time again to ask that major question - can Lee Westwood win at last?

The Open 2014

Time again to ask that major question - can Lee Westwood win at last?