Five new property & mortgage tips

by Neil Faulkner on 22 May 2009  |  13 comments
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Read Neil Faulkner's top new tips for homeowners and wannabe owners.

You want a DVD player. You can drive round the corner and get one for a total cost of £100, but you can save £10 if you drive to the out-of-town department store. You choose to travel further to save the £10 and Hey Morrisons! You've saved 10%.

The next day you decide to buy an HDTV. If you go round the corner your total bill will be £3,000, but you'll save just £10 - a measly 0.3% - if you travel out of town. You decide to go round the corner instead.

That is a common mistake. The cost - a longer drive, and the benefit - a £10 saving, is the same for both trips. So do you want to save the £10 or don't you?

That introduction, believe it or not, leads me into my first of five new property tips:

1. Waiting for the perfect re-mortgage deal can cost money

The financial mistake I described above was confusing a percentage saving with a pound saving. Interestingly, we don't make that mistake when it comes to our mortgages. (Did you see that twist coming?) Instead, we care a great deal about every £10. We don't want to be stitched up!

I know two couples who delayed re-mortgaging, saying they were leaving it till they had time to research the best deals properly. In the meantime, they paid a much higher amount on their existing mortgages. What they could have done is contacted a whole-of-market broker to do the work and, if they had just five minutes to spare, double-checked the deal using an online search tool.

I worked out that both couples would have saved more money by taking one of many reasonably competitive deals more quickly. They would have saved a lot more than £10.

2. You won't get the best price on your property deal

Stressing about the perfect deal affects property buyers and sellers, too. If we buy and the value falls or we sell and the price rises, we all too easily feel consternation, stress, frustration and disappointment that we didn't call the market perfectly, or obtain the best price.

One thing is almost certain: you will not buy at the bottom of the market, because it's impossible for most people to do so. Most sellers, on the other hand, will not sell at the top of the market. On average, we can't all get the best price.

For that reason, most of us should be satisfied if we do better than average, getting something of a bargain. This shift in attitude will make us feel like we've won. The old attitude will for most people leave a sour taste in the mouth.

3. Sellers must lower their prices

That was as an unusually esoteric point from me, so let's get back to more solid financial ground.

Here's a picture of the property market over the past six months:

• Quite a lot of sellers.
• Millions of interested buyers.
• Almost no sales taking place whatsoever.

What's going on?

It's all about price. Estate agents have been advising sellers since the start of the market downturn that they should price high and let the buyer negotiate downwards. That is why properties aren't selling.

Even now, not many buyers think prices have stopped falling and so they've been waiting. Most buyers will not even look at a property in a falling market unless they think it is already at a fair price. A 'fair price' to them means it's at or near what they think will be the eventual low point in property prices. If the property is priced high, they won't even view it. They just wait till the price comes down.

Therefore, sellers who can't wait for prices to rise again should reduce their prices to what they think their property will actually sell for. If you judge it right, you will get 20 interested people round in a month (rather than the one interested person so far in 20 months). Some buyers will still try to haggle, but it's simple. You say 'No', and you can say it confidently, because you know it's a fair price and one of the many other buyers will pay that. Once people start turning up to admire the place, you may even start a bidding war.

4. Buyers should get buying

Buyers should think about getting a move on, despite falling prices. Remember, it's not likely that you'll buy at the bottom, but on either side of it. When enough people think it's the bottom they'll rush in again. This will quickly push prices back up, create a lot more bidding wars, and the danger of gazumping will return.

With this in mind, consider making your best guess on the bottom now and start making offers based around that figure. It'll be less stressful for you to buy now when the seller will be grateful that someone turned up to see the property. As I said in my last point, most sellers are struggling because they've priced high, but no one is making offers. Oblige them.

5. If you're not going to sell, fix your mortgage rate

We need to be concerned about mortgage rates. Interest rates have low for quite a while now, but with the Bank of England pumping money into the economy to encourage more spending, interest rates will eventually be forced up.

For much of this downturn, variable and tracker rates have been the cheapest for a reason: there's only one way that interest rates can move significantly, and that's up. Therefore lenders don't want us to fix.

Fixed deals may be more expensive right now, but they're still historically very cheap. If you fix your mortgage now for at least five years you will lock in a very low rate and have peace of mind.

Compare mortgages through lovemoney.com

More: I dodged the housing crash | Help for struggling homeowners