The return of gazumping

Are prices about to go through the roof?
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Mortgage lenders are forecasting property prices will rise by 7-8 per cent again this year and maybe the same again in 1998. Estate agents are hoping prices will soar even faster, starting a scramble to buy which will drive up prices and sales volume and multiply the commission they earn. Forecasts of prices rising by double figures are not difficult to find, especially in London and the commuter belts round Birmingham and Manchester.

But the buying public still says it is not convinced that prices will escalate or that there is any need to rush to buy this year. A straw poll of over 100 potential borrowers who contacted First Mortgage, one of the direct-selling lenders, last week showed that they only expect property prices to rise by 2 per cent this year if the Conservatives win the next election, and by 2.5 per cent if new Labour wins.

There is a certain element of wish fulfilment in any forecast made by borrowers. Some of them will be first-time buyers with no property to sell, while the vast majority of the others will be borrowers who are planning to trade up in the market rather than down. None of them wants to see property prices accelerating, not at least until they are safely on a higher rung of the ladder. So their scepticism is understandable.

If they hold their nerve it suggests that buyers are still hoping to avoid an unseemly stampede and the widespread gazumping which will follow, at least in England and Wales. The question is, will they succeed in facing down sellers who are looking for windfall profits to intensify their own comfort factors?

It is a crucial test of the way the housing market will develop, this year and next. Past experience shows that if prices start rising by 10 per cent a year or more, and property becomes more valuable than its cash value then gazumping will become widespread. At the moment it is only a local phenomenon but the signs are not good.

In the early stages of previous house price booms supply and demand have been in rough balance. This time round it seems that many sellers have been keeping their property off the market, at least until they feel they have recouped the paper losses on their properties during the recession and prices are back to peak 1990 levels. So demand can quickly exceed supply and start a spiral.

If buyers are wrong in their assessment, prices continue to rise, boom conditions spread to the less dynamic regions and gazumping becomes commonplace again, it will mean that despite widespread pressure for reform, a six- year window, when it would have been possible to ban gazumping without too much of an outcry from sellers denied their chance to hold buyers to ransom, has now closed.

While increased rates on offer to savers are catching the eye this week, there are signs that some lenders are not waiting to see whether Eddie George succeeds in convincing Chancellor Clarke that the national interest demands another rise in interest rates before the election. Birmingham Midshires, currently the ninth-largest building society, has unilaterally increased its standard variable lending rate from 7.24 per cent to 7.39 per cent for both new and existing borrowers with effect from yesterday. It lifts the society above the general level of converting societies like Halifax and well above dedicated mutuals like Nationwide and Yorkshire. It may well be seen as a indicator that the society has given up the fight to stay mutual.

Yorkshire has ruled out an increase on its current 6.94 per cent rate, but Ipswich BS is going up from 6.99 per cent to 7.24 per cent next month. If this does turn out to be start of a general rise in rates it is unlikely to be the last this year, and the only consolation for intending borrowers is that it could eventually slow the upturn in property prices.