May 20th, 2014
Mark Carney, the Governor of the Bank of England, sparked yet more discussion on the validity of the Governments Help to Buy incentive scheme over the weekend, especially provocative in a market where demand for property is high, but stock in many parts of the country is low. The comments should be observed by anyone looking to make use of either of the current incentive schemes, as it appears that concerns over an ever increasing house-pricing bubble could force the George Osborne’s hand to pull the plug.
Just one year into a planned three year cycle, the Help to Buy scheme has certainly had an effect on the state of the housing market. Since the first stage of the scheme began in April 2013, the market has seen steady increases in activity across the UK. However, the scheme and its second phase have also been noted as an influence to increasing house prices, which has furthered debate that preventative steps need to be considered to prevent a crisis developing, essentially halting the resurgence of the UK economy.
For prospective buyers the market has become a fevered race to table a bid, in order to stave off further interest in a favoured property. Tory MP Tony Field commented on the state of the market, stating that: ‘There is that sense that it’s overheating, but it’s a London and South East thing – the housing market is still pretty sluggish in the rest of the UK.’ While his point about the capital and South East is largely accurate, the dreaded threat of gazumping has leaked back into the market, and not necessarily localised to these areas.
The term gazumping became popular during the 1980’s and 1990’s, and refers to the practice of a vendor accepting a higher bid from another purchaser that supplants a currently accepted lower offer. It has been largely absent from the market since the financial crisis hit in 2008, mainly because property values had been dipping and the expectation of an escalating bidding process was non-existent in the declining market. But as prices have gradually crept up over the past year, the practice is becoming common place in London.
Compounding the situation further, estate agents in the capital have in recent months begun utilising a practice referred to as ghost gazumping. As agents are aware that demand is currently outstripping supply, a practice has unfolded where a phantom second bidder has offered a larger bid than a prospective purchaser has offered. The ‘ghost’, a fabrication on the part of the agent to hike the price, will suddenly disappear as the concerned prospective purchaser raises their own bid to match the expectations of the vendor and agent.
Any prospective purchaser should note that the best way to deal with the mounting pressure to buy at pace is to secure any required finance, prior to making an offer on a property. Within almost the first few minutes of any conversation with an agent, it is now not unlikely that a buyer will be asked to produce an agreement in principle from a bank or lender to prove that their mortgage funds are part-way approved.
Simon Butler, a broker for Contractor Mortgages Made Easy, concurred with this point: ‘We will always advise all our clients that confirmation of financial backing is integral to securing a property. It is really vital in a mortgage sector that has recently seen increases to the level of details required for a mortgage to be underwritten that anyone looking to take out a loan talks to a broker or their bank before progressing to make an offer.’
McBurney noted that the lack of confirmation could also harm the chances of a prospective bid being accepted: ‘If an agent does not feel that the offer is serious, it is likely the bid will not even be passed onto the vendor. As there is so much competition for property, it is essential that anyone looking to buy can present a valid agreement in principle to an agent from the outset.’
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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