If the property boom isn’t over, then why can’t interior designer Kelly Hoppen sell her much hyped flat in Battersea? It’s been written about endlessly – it turned up in The Sun in November last year, and in both The Sunday Times and The Times earlier this month – and all in a style that appears to suggests that £5m is no big deal of a price for a two bedroom flat on the wrong side of the river.
But all to no avail. Instead of being offloaded into the hands of a price-insensitive hedge fund manager or one of the wealthy foreign buyers we are led to believe constantly roam our streets buying every overpriced property they pass, Hoppen’s penthouse is still very much on the market. Last week it was in the Mail on Sunday, being described by an optimistic estate agent as “a trophy flat not an investment” and by Hoppen herself as “a wonderful space to live in and entertain.”
This sounds great doesn’t it? The flat is gorgeous – I haven’t visited and don’t suppose I’ll be getting an invite any time soon but I do read an awful lot of newspapers so I have seen a good few pictures of it. But I still don’t think we have read the last about this particular “palatial living space” with its “rich tapestry of velvet fur crystal and chain mail.” Why? Because I can’t quite see who will buy it.
The wealthy foreigners, assuming they exist, are unlikely to want to buy in Battersea when they can buy in Chelsea (as they now can – there is much more on the market than there was) and the City buyers have all but vanished. They now all have to worry about losing their jobs: note that even Goldman Sachs, which claims to have been barely affected by the unquantifiable sub-prime losses that have floored everyone else intends to dump 5% of its staff, something which rather suggests everyone else will have to dump more like 10, 15 or even 20%.
Most of them will be also suffering a little from the volatility of the last few weeks; even if it hasn’t hit their wallets much it won’t be doing anything for their nerves nor will it put them in a spending mood. But worse than all this – from the point of view of someone trying to sell a two bedroom flat for more than £500,000 in London – is the fact that even if well-paid buyers were mad enough to want to take out a huge mortgage to buy a London property they probably couldn’t do so.
The banks aren’t just pulling back from the traditional subprime market, they’re also tightening up on the way the make their really big loans. In the early part of last year it wasn’t hard to borrow £1m plus. This year it is very hard indeed. So City workers hoping to borrow a large sum of money secured on a salary that might not last much longer or a bonus that may never appear are finding their buying power much more restricted than it has been for a while. Hoppen often says in interviews how much she loves her flat in Battersea. Given that she might be living there a while (assuming she doesn’t cut the price to meet her market) that’s no bad thing.
Property auctions: a better place to buy a flat
Anyway, if you’re in a hurry for a flat there may be a better place to go than to Aldine Honey (Hoppen’s estate agent – those who have taken leave of their senses can get in touch on 020 7834 4901). The auction house. According to Allsop, the UK’s biggest property auction house, the number of repossessed homes going under the hammer has doubled since last year: they now make up around 40% of the houses sold (for an average price for a mere £200,000) at auction. Allsops has just published its February catalogue – there’ll be 410 lots for sale over 2 days. Will there be more in March? You can bet on it.
A few years ago anyone who could breathe (and plenty who couldn’t – note the rise in mortgage fraud) could get a mortgage for 100% of the purchase price of the property. No more. Today that’s 90%. Or, if you are considered a subprime borrower, more like 75%. So if you borrowed 100% on a deal that has just come to an end and you want to remortgage, you can’t. And if that means that you can’t make your repayments – when deals come to an end interest rates and payments go up nastily – your house could all too easily end up at Allsops with all the rest of them.
On the plus side you’ll have the interesting experience of finding out what it is really worth. An auction is the purest possible way of finding out the right price for something. There’s no PR, no careful marketing, no estate agent lies or manipulations, no ‘staging’ and no waiting for the ‘right buyer.’ There’s just a man with a hammer and a room full of potential bidders. And the price one of them eventually pays? That’s the market price – the right price for that house given the prevailing market conditions. I wonder if the Battersea penthouse would get £5m if it went to auction.
While I’m on houses, a word on London prices. There is a very resilient myth in the market that has it that prices in London did not fall much in the last crash. This is not true. As Cliff D’Arcy of the Motley Fool pointed out in a recent article, in fact they did fall. By a lot and by more than the national average. In the fourth quarter of 1988 the average London house was going for £105,234. By the first quarter of 1993 you could have picked one up for £75,983. That’s a fall of 27.9% compared to a national average fall of only 12.5%. I wouldn’t call that not falling much.
A lot of you have written in over the last few months asking us what on earth you are to do with the vast gains you have made from selling your houses at the top of the market. If you are going to be using them to buy another house in due course I’m afraid there is only one answer. You must put them in a savings account and leave them there.
Which one? Click here to compare some of the best offers on the market: Compare savings accounts. Then – and this is the absolutely vital bit – read James Ferguson’s views on which of these high payers are safe places for your money and which are not, here: Credit default swaps: how to spot the riskiest banks. A high interest rate does not necessarily make an account a good one for your money, quite the opposite.