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Every minute of every day, we hear about house price falls. Proclaimed experts have been dusting off their crystal balls, shouting from the rooftops about how much money we’re all going to lose.
For those who’ve recently bought property, these declarations can be panic-inducing – especially when such negative market sentiment is set against the current backdrop of increasing interest rates.
For those who are thinking of buying or selling, it’s an anxious time. Will prices fall further? Will you end up in negative equity before the end of the year?
The truth is: nobody knows.
All we do know is that house prices go up and down. This is the history of the housing market, and always has been. Should you choose to look at the stats, you’d see prices have always had a cyclical nature. Therefore, it makes perfect sense that prices are going down right now, but then they will go up again. It is normal.
Back in 2006, I was scouting the country for high yield properties and I ended up in Derbyshire. I bought a Victorian two-bedroom end of terrace house for £62,000.
I didn’t know much about the area, but I liked the property. It was on a quiet tree-lined street with no through-road, and the house had a cute forecourt at the front and a large rear garden. It had previously been lived in by a young family and was in a tidy condition.
When I spoke to the agents, they said there was strong rental demand and the house would rent for £450 per month. At that time mortgage rates were around 5pc.
Looking back at my paperwork (remember, these were the crazy pre-financial crash days), I can see I bought the property on a fee-free tracker mortgage and then had it revalued a week later by another lender.
They estimated the value at £79,500 and offered me a five-year fixed mortgage of £67,575 plus £1,049 for fees (added to the loan) at a rate of 5.34pc. The monthly payments were £305.38.
I was made up and thought I was really something. Not only had I got my original deposit back, I’d got even more money from the next bank, and I was going to be making a small profit on the rental every month.
But good things always come to an end.
In-between tenancies – in a period of just 48 hours – the property got broken into. The roof was stripped of lead and all of the copper piping got ripped out. The insurance covered some of the bill for the repairs, but it wasn’t going to be sufficient to get the property back into the nice condition it had been.
I was going to have to put my hand in my pocket.
The problem was, the market had dropped and the house was now only worth around £65,000 in its current condition – which meant I was in negative equity. The agents all agreed it would be best to do the work, and then I could get around £75,000.
The next problem was: the work was going to cost £10,000, which meant I was spending £10,000 to make £10,000 back. That, dear reader, is a bad investment and would mean I would lose money.
Now, I admit I’ve lost money on property before, but this seemed silly. The rental at that time was £550 and I still liked the property. I decided I would dig in and pay for the repairs, and keep the property for longer.
It looked stunning when it was finished and rented at £650 to a lovely tenant who stayed until last year, when they decided they were going to move in with their partner.
When the agent called me about the re-letting, I asked in passing what the property was now worth. When they said £125,000 my jaw hit the floor. This was way more than I’d anticipated. I thought the agent was over-egging it and nobody would actually pay that much for the house.
But they did.
A first-time buyer saw the property and fell in love. The sale went through, and now they are the new owners of the house I was once in negative equity on.
And this is the key thing about property: it is not about timing the market, but time in the market. Like a bad haircut, negative equity will, in time, grow out.
To succeed in property, you need to ignore the noise
Price drops and negative equity aren’t necessarily fatal to your ambitions