Property Prices – How Much is Too Much?

When considering buying a home, cost will be a major deciding factor. It’s important to ensure you are getting a fair deal.

Oscar Wilde, no stranger to a witty quip that contains truth within the humour, stated in Lady Windemere’s Fan that, “a cynic knows the price of everything and the value of nothing.” When looking for a new property, a healthy dose of cynicism can be helpful. After all, estate agents have been known to stretch the truth a little with their terminology. The second part of this quote is arguably most important, though.

In many respects, a home is worth whatever somebody is willing to pay for it. While property is constantly held up as a failsafe investment, it’s vital that we don’t lose sight of the fact that a house is, first and foremost, a home. What matters most is that you feel comfortable and happy within these four walls.

All the same, it is not helpful or sustainable to pay over the odds. When buying a home, always ensure that you are not being taken for a ride by an opportunistic incumbent owner. Overpaying for property can be a mistake with far-reaching repercussions.

Why is Property So Expensive?

It’s no secret that property is phenomenally expensive in the UK. For some people, the idea of owning a home feels like a pipe dream – hence the huge rise in shared ownership properties, which allow homeowners to clamber onto the first step of an undeniably daunting ladder. Just why are houses so costly?

We can thank the banking industry. The global financial crisis of 2008 was driven by excessive lending, most notably on mortgages. In the decade leading up the so-called credit crunch, house prices tripled in many desirable areas. This was because banks were handing out mortgages with abandon.

This led to greater competition in the marketplace. Bidding wars broke out on property and prices rose sharply. This was perfect for banks, as it meant that they could provide higher mortgages – with higher interest rates, thus making more money.

So, why did house prices not tumble after the bubble burst? They actually did, leaving a lot of speculators in dire financial straits. Unfortunately, wages for many people were also frozen as a result of the financial crash, and in many cases, have barely risen since. Property prices, however, have continued to rise in line with the Bank of England’s rate of inflation, even though salaries have not.

Despite this, property has remained in high demand. More people than ever are on the move, which means estate agents cannot shift houses fast enough. While this may make it tempting to pay whatever it takes to secure a home, you’ll still need to do your due diligence to ensure you’re making a sound decision.

What is a Fair Price When Buying a Home?

If you are buying a home, you’re potentially making a mortgage commitment that will last decades. This means that you need to think very carefully. If you overpay for a home, it can quickly become a financial albatross around your neck. When you identify a property at a price that you consider fair, do some research. Look into what similar properties around the same area have recently sold for. Zoopla can be helpful for this.

If the house you’re interested in is priced £10,000 higher than everything around it, ask yourself why. Have major improvements been made and extensions added to the property, justifying this additional expense? Or does the owner just have pound signs in their eyes, and are hoping to cash in on an artificially inflated marketplace?

Consider the bigger picture when considering a house price. At the time of writing, the world is still in the grip of the COVID-19 pandemic. This has drastically altered priorities for many people. As people are flocking to the countryside from the city, some parts of the country that were previously deemed affordable have seen a huge spike in property prices.

Ask yourself if this is sustainable, or will prices drop sharply in a few years when cities become appealing again? This could leave you into a tricky situation if you want to sell your home – you may end up needing to sell for less than you paid. This will make it tricky, or maybe even impossible, to secure another home.

You also need to think about what you can realistically afford on a monthly basis. Do not take out a mortgage that stretches your finances to their very limit. Even if you can afford it today, ask yourself if you’ll still be able to manage if you lose your job. Equally, interest rates on mortgages may rise. A good rule of thumb is to only commit to a mortgage you could still comfortably afford it if was unexpectedly increased by another 50%.

Negotiating a House Price

With all of this in mind, negotiation is all important when considering whether to buy a house. Most owners will apply an asking price that they’re hoping for, not necessarily expecting. In most cases, unless there is phenomenal interest in a property, you’ll be able to go in a little lower the asking price – sometimes by as much as 10% – and still be successful.

This needs to be approached with caution. It’s easy to cause offence with an offer that is considered insulting and an attempt to lowball an owner. The situation is complicated by the fact that an estate agent, despite any encouraging words, is working for the seller of a property, not the buyer. After all, the higher the sale price, the greater the estate agent’s personal commission.

Remember, an offer is not legally binding. Our advice is to make an offer to secure a property (as long as you can afford it!) – and then book your survey as quickly as possible. A good surveyor will be worth their weight in gold, so do not skimp on this expense.

A detailed, through survey will give a genuine idea of how much a property is really worth. If structural issues are discovered, you can discover if you’d like to continue – on the condition that the asking price is reduced to accommodate the expense of any work that will be required.

Buying a house is never risk-free. By doing your due diligence, however, you can ensure that your purchase is not akin to spinning a roulette wheel and placing your life savings on red. It may take time to find the right property, and you may lose out on some homes by expressing caution. That’s still preferable to overpaying and living to regret it, though.