Buying and selling property in a falling market

What causes a falling market?

Just as property prices can soar when the economy is strong, consumer confidence is high and buyers are competing for the properties on sale, there will be times when they do the opposite. 

Historically, properties in the UK have grown in value over 10-year periods, but in the short-term there can be 'blips' in the market spanning months or years. Market ‘blips’ can see property prices stagnate or even fall, as they are in 2008. There are three reasons for the falling market:

• The credit crunch has slowed the economy. Buyers are finding it harder to gain finance, so there are fewer buyers than in previous years.
• Some properties have become oversupplied, such as flats in city centres outside of London.
• Sellers are not reducing their prices enough to attract buyers who are able to purchase.

These problems are exacerbated by media headlines that regularly report property price falls from national surveys. Although they don’t necessarily cause property prices to fall further, they make the problem worse by reducing consumer confidence.

However, the picture in the media is based on ‘average property prices’ across the UK. When you are buying and selling your home, these averages rarely reflect what is happening with an individual home in a certain street. So it's important to understand what is happening locally in your area rather than worrying about headlines.

But don’t panic because most buyers actually benefit when moving in a falling market!

First-time buyers/ trading up

If you're a first-time buyer or trading up, you're likely to be at an advantage:

First-time buyers (one of the biggest buyer groups) have nothing to sell, so have less competition finding a property. If you're a first-time buyer and you do your homework, you could even bag a bargain.

Any seller who is trading up to a new property and has a reasonable amount of equity in their property should gain overall. If you're trading up, you may lose, say, 10% on your own property worth £150,000 (a drop of £15,000), but buy another property worth £250,000 at a 10% discount (saving £25,000), which leaves you to benefit from a difference of £10,000.

Finding a property bargain

If you're a buyer who's keen to find a bargain, you'll need to 'property watch' for a while. Find five properties you're interested in, preferably with sellers who:

• need to move for a reason (new baby, new job etc)
• have already found a new home, so have a strong incentive to move
• have had their property on the market for some months and are likely to ‘take an offer’

Make offers on all five (letting all parties know this is what you're doing) and see who comes back with the best deal.

It's also worth considering buying new-build properties as developers are more likely to be realistic about their prices as they compete for buyers - and they have to sell their homes to survive! During a falling market you should get good deals on new builds that are promoted as the ‘last few remaining’ or on the first properties on a new site, as the developer will be keen to show they've already sold.

Selling your property in a falling market

If you need to sell your home in a slow or falling market, there are several ways to help ensure your property sells.

Hints and tips for selling in a slow market

• Carefully choose an estate agent who's experienced in a slow market - see our guide to finding the best estate agent for more advice on this.
• Present your property well, making sure it has good ‘kerb appeal’ and is clean, tidy and clutter free.
• Price your property realistically. Trying to get the ‘top price’ for your property could mean you don’t sell for months and then have to drop your property price even further.
• Use price points or offers to attract buyers. For example if your property is priced at £265,000, offer to pay the additional 2% stamp duty, or make sure that your property is the best value for its kind in your location.
• Even if you receive a low offer, consider accepting if it allows you to move into your next home.
• Consider buying a new home from a reputable company that will offer to ‘part exchange’ yours.
• Have an RICS surveyor survey your home, so you can show people it's worth what you are asking and that there is nothing to do on the property. If work needs doing, get it done to a good standard, or price the property accordingly.

Seller beware!

There are some companies offering to buy your property for ‘cash’ and others that will buy your property from you and then rent it back. Some of these companies offer fair schemes but others offer a much lower price than it’s really worth. Some agree that you can rent the property for as long as you want, but then serve notice for you to move out within months of buying your property.

Never sell to these companies unless:

• you have an independent survey from a surveyor (or an estate agent that has a surveying practice)
• you use your own legal company (not the one recommended by the cash buyer), so that you gain independent advice on the deal

For more information on what affects a property's value, getting on to the property ladder, valuing a property and making an offer, and how to prepare and value your own property, buy Buy, Sell and Move House by Kate Faulkner.