One in five homebuyers is overpaying
A fifth of homebuyers are paying over the asking price to secure their purchase, a new report has found.
A 27% decline in the number of properties for sale during the 12 months to May is the cause, the National Association of Estate Agents (NAEA) said, with buyers well outnumbering sellers.
Each member agent had 44 properties for sale in May and the average number of house hunters registering was 374.
That same month, 19% of properties sold went for more than the asking price - almost three times as many as when the NAEA first started tracking such sales in September 2013.
Semi-detached homes were the most in demand, with 37% of househunters on the look out for one. Some 29% wanted a detached property, 10% a terrace and 18% a flat.
Meanwhile, some 46% of sellers took an amount less than their initial asking price, which the NAEA said was the smallest percentage it had ever recorded. By comparison, in September 2013, 71% of properties sold for below the asking price.
With this necessity to pay more, NAEA member agents also reported an increase in the average number of sales agreed per branch, up from nine last month to ten in May.
Mark Hayward, managing director of the NAEA, said: "With limited numbers of houses for sale, unfortunately it means that those who simply can't afford to increase their original offer will often be priced out the market.
He added: "With current speculation of the interest rate rising, we could see more homeowners putting their houses on the market in a panic that house prices may reduce as a result of interest rate and mortgage rate hikes.
"However the new Mortgage Market Review (MMR) rules may create 'mortgage prisoners' who cannot gain new mortgages for house moves, resulting in a slowdown of house sales and this, coupled with recent sharp rises in house prices, could start to take some of the strongest heat out of the property market."
Property expert and managing director of PropertyChecklists.co.uk Kate Faulkner warns house hunters to think very carefully before committing to buying a property for more than its asking price.
"When buying a home it's very easy to get caught up in the emotion and forget about the numbers," she explained to Moneywise.
"If you're buying a home you plan to be in for the long term – say 15 to 20 years, then overpaying can make sense if you're sure it's the right house in the right area. And if it's in the catchment for a good state school, it could prove a great investment for your children's future and because local property prices will likely stay at a premium."
But she warned that lots of people end up paying far too much for properties, particularly when they buy 'fixer uppers'.
"People often have no idea how much the work will cost so when they pay over the asking price and then fork out for the work, they're often left disappointed when the extra cash injection doesn't lift the property's value by the same proportion. That's why it's so important to be mindful of the ceiling price on the road you're buying - so look at the best house on the road and work out what's realistic."
She added that those with small deposits and not much equity in their homes are put themselves at risk by overpaying for property.
"People buying for the first or second time should avoid paying more than the asking price because they put themselves at grave risk of negative equity if property prices fall."
Whenever you're looking to buy a property, Faulkner suggests ignoring asking prices – at least to begin with. "You should instead look at sold prices. Even if these are a few months out of date, you can then research the local market and assess the current price accordingly. So to repeat, always use sold prices as a starting point with an estate agent."
The circumstances in which a property is worth less than the outstanding mortgage debt secured on it. Although it traps householders in their properties, the Council of Mortgage Lenders (CML) says there is no causal link between negative equity and mortgage repayment problems. At the depth of the last housing market recession in 1993, the CML estimated 1.5 million UK households had negative equity but most homeowners sat tight, continued to pay their mortgages and eventually recovered their equity position.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.