These are generally the headlines that no valuer particularly likes to see.
It is not that we are general killjoys to a buoyant market, it is more that historically a boom market is invariably followed by home-owners and investors wishing to re-mortgage or buy when unprecedented prices are being achieved so the sales evidence, essential for a valuation, doesn’t by and large exist to support these new prices.
Just last week we valued a property in North London which had been unsold on the market for 7 months up until Christmas. Then in January it received multiple offers to go 10% over a figure that could not be achieved for several months over the previous year. So what is its market value – this new price or is this just a short term spike that will then retreat when this high demand / low supply market eases?
Generally, these frenetic markets which see marked increases in prices are short-lived and the prices unsustainable. Whilst this mini-boom market in London is likely to continue for the next few months, particularly as the overseas market begins to come back, it will most likely start to soften into the second half of the year.
Historically, it is during these subsequent quieter periods that prices agreed by buyers during the boom period start to look unrealistically high which is why valuers must base their valuations on historic sales only – however frustrating that can be for buyers and remortgagees. If valuers stick to this methodology problems and significant lender losses, as experienced nationally in 1990, 2008 and in PCL from 2014/2015, can, to some extent, be avoided.
Whilst we are long overdue a sentiment driven correction in house prices, it is unlikely to happen this year as we need to flush out the pent up demand due to the pandemic and the all important overseas investors who have not been able to travel.
London prices have in effect been in decline, or at best stable, for over 5-years now so a much needed recovery in demand and prices is expected.
Whilst we are now seeing some activity in PCL which had started to occur after the stability of the 2019 election result, the transactional costs are still strangling this upper tier of the market. The Government, having lost so much stamp duty income over the last few years, should reduce these high transactional costs which will help this smaller, but high value, tier of the property market generate some significant tax revenues once again.