The presenters of Location, Location, Location, Phil Spencer and Kirstie Allsopp, offer their views on the state of the housing market today and reveal their thoughts on the situation facing first-yime buyers…
What are your thoughts on the state of the housing market in 2007 in light of the interest rate rise in January and climbing inflation?
Phil: Prices can’t go up at the same time as interest rates. There are two opposing influences at work and they don’t go together. What I think is happening is this: the top of the market is very strong with lots of city money and international buyers. They are stretching the market from the top end. These buyers, however, are not so affected by interest rates at least not in the same way as someone who has scrimped and saved for a mortgage of 95% on a £200,000 house. These are the people who need to sort out whether they can afford the debt in times of rising rates. The market will rise but it’s going to be an interesting year.
Kirstie: I don’t think we have a national housing market now. It’s very regional for example in London. Of those properties selling for £5 million or more, 75% of buyers are from overseas. I recently heard about a £300,000 flat being bought it was for the buyer’s staff. That was another home taken out of the reach of first-time buyers. Prices are high in particular areas and this then spreads outwards. A while ago, Notting Hill was a down-at-heel area, now it is ultra trendy. Neighbouring areas have come good and in turn their neighbouring areas will improve. Forest Gate, south of the river, is another place that is regenerating. The same is happening all around the country.
Is there anything to be done to help the first-time buyer?
Phil: Not really, because this state of affairs is a reflection of the times rather than the market. It was always difficult to get a foothold on the property ladder.
These days people want more flexibility of lifestyle and we are more open about becoming tenants. Maybe, years ago, there was a stigma attached to renting rather than paying a mortgage. As I see it, that has gone.
Kirstie: We need far more help from the Government, who should encourage home ownership from an early age. Money given by parents to their children for homes should be tax deductible and the mindset has to be that owning a home is a number one priority.
We could also help by rethinking our building programmes. Small, ten-house rural developments on the edges of villages at an affordable price would regenerate our villages. We also need to clear a lot of the red tape that holds people back.
More and more property purchases are in the buy-to-let sector. Does this worry you in terms of the supply of housing for future generations?
Phil: It’s a fact of life that’s governed by supply and demand. This sector has risen greatly. A few years ago, 9% of sales were to the buy-to-let market today it is 11% and will continue to rise.
Of course, it’s worrying that there are places where the locals can’t buy take the West Country as an example. It’s not great that the local shopkeeper can’t live near his shop because of second home-owners inflating the market.
Kirstie: People have to look at the best ways to invest for their futures and property is the answer in my opinion. I’ve looked at various pension schemes but, as soon as I become interested, along comes the Chancellor to raid it. You can’t stop people doing what is best for them and buying-to-let is it.
Is Stamp Duty fair?
Phil: It isn’t fair for first-time buyers and I’d love to see it abolished for them.
When it was brought in it wasn’t designed and conceived to be paid by those buying their first homes and the threshold left out was somewhere in the region of 90% of buyers. The trouble is that it is easy to collect and provides far more revenue than was ever imagined. That makes it rather attractive to the Treasury.
There’s a further negative spin-off for the first-time buyer and another bonus for the taxman. Buy a house and you end up with all sorts of other expenses beyond the mortgage. There’s the fixtures and fittings, the carpets and curtains all carrying VAT.
If the Government is really concerned about first-time buyers it should scrap it.
Kirstie: It’s a disgraceful tax. It’s wrong that if you move from one side of town to the other and spend £250,000 on a home you should be clobbered. After all, you’re paying tax on money you’ve already paid tax on!
It is, to my mind, the single cause of the stagnation of the market and the cause of the disappearance of first-time buyers.
If you want the tax to be fair it has to be at the high end of the market for example, on homes costing over a million.
And what about Inheritance Tax? Is that fair?
Kirstie: I read recently that the art market had enjoyed its best week ever. Imagine I’ve been left a Picasso that I really like and want to hang in on one of the walls of my house well, I can’t, because I’ve got to hand over 40% of its value to the Government. We’re talking millions! And this is a Government that has taxed people throughout their lives on what they earn and what they buy.
Inheritance tax is a double taxation. I see the insides of many homes where the furniture is, more often than not, just knocked together ‘rubbish’. It’s because the luxurious and more quality pieces that have been in the family for years can’t be kept because of this tax drain. The threshold has got to be higher than it is.
Phil: Inheritance tax is another hugely political hot potato and will most certainly be on the agenda the next time there’s a general election.
Talking of politics, what is your view of Gordon Brown’s announcement, as Chancellor of the Exchequer, that in ten years’ time all new-build homes should be carbon neutral?
Phil: It’s a fantastic idea. We are now far more aware of the dangers of global warming and this really concentrates peoples’ minds.
Most of us are aware of the damage that cars do to the environment but what a lot of us don’t know about is the damage that our homes do in fact, they’re worse than cars.
In Britain we’ve been far slower to latch on to things like recycling and there doesn’t seem to be a properly orchestrated campaign to make us better. But let me tell you this, if we could all cut our energy bills by £50 a year not only would we save money but we would reduce carbon emissions by the equivalent of 2.3 million cars. And it’s not difficult to do.
If people knew how much money they wasted by leaving appliances like televisions and DVD players on standby, they’d be appalled. We’ve got the worst record in Europe for recycling but it doesn’t have to be that way. We all need to think about being more energy efficient.
Kirstie: I’m not sure the thinking on eco reform is particularly joined up. The likelihood of this taking off to any great extent is about the same as expecting carbon neutral motorways.
I’d like to see the money from the new air tax spent on research to form a cohesive green policy. When you think about energy waste look at the number of streetlight that are always on. Why not look at old-fashioned remedies for keeping our house warmer, like heavy curtains that keep the heat in rather than wooden-slat blinds that let it out. And is the energy expended in making a double-glazing unit commensurate to the energy savings it is meant to make in the house?
Have you made any energy efficient changes in your house?
Kirstie: I have old-fashioned heavy-duty curtains and I’m very careful about switching off lights. The house I’m in was built in the 1950s and I believe in recycling there’s not a door in the house that comes from a tree chopped down in the last 50 years. We’ve found old doors and restored them. The other area where people could save is by buying solid old furniture from auctions. There’s amazing stuff out there. Lastly, where I can, I’ll walk or ride a bike rather than get in the car.
Phil: Yes. I moved in 2006 and was very careful to make sure that the new appliances I bought were energy efficient. The loft is insulated, the boiler is up-to-date and I’ve made sure to turn the thermostat down by one degree. I also use low voltage bulbs.
Following on from this theme, does it worry you that in the South East of England, where there is a huge demand for new houses, developments might be built in high risk areas, such as along the Thames Estuary, where global warming could lead to serious flooding in the future?
" align="left" border="0" Of course if we don’t think and act on global warming we’re going to be in trouble it is a threat that can’t be ignored. You have to think about the area where you’re building and build accordingly.
That said, there are areas that look as if they might have future problems but where those problems can be overcome.
The Dutch drained much of Holland, against the odds, so you can make land useable and safe.
" align="left" border="0" The fact that builders today can erect shell homes with a 40-year life expectancy is ridiculous. Also, it’s daft to build in an area where there is a future flood risk because of global warming without thinking through your green policy and implementing it.
Are we overlooking the need for people to have a sense of community when building brand new housing?
Kirstie: It’s very important for people moving to a new area and particularly for young mothers who want and need to make new friends.
I live in Devon, where there is a great sense of community and a will to do things to better it like our recent campaign to stop a go-kart track being proposed by Nigel Mansell. Everywhere you go, you find small communities pulling together with all sorts of campaigns from saving the village post office on to stopping motorways and runways being built. Certainly, communities create soul and heart and a sense of belonging.
Phil: I think the need for a community is something that worries older buyers, not those making their first or second purchases. It’s a stage of life that probably doesn’t occur to youngsters.
The pace of life is so fast that many people, especially in big urban areas, like London, don’t have time for neighbours and a sense of community. So not only is it hectic, but it is also becoming more crowded and people want to go home, pull up the draw bridge and have some privacy. People are paying a lot of money for city homes so they expect to be left alone, if they so choose and most do. Older people want community life and that is why in later years they move away from the cities.
With so many mortgage deals available how can buyers be sure they are getting the best deal?
Phil: Buyers must get the deal that suits them and not be seduced by the headline terms. The key question to ask yourself is this: is it suitable for you right now as well as in the years to follow? Everyone’s needs are different and getting the right deal is complicated. Borrowing money isn’t hard, but the terms of the loan are something else again. I would always recommend talking to an independent financial adviser and you really need to focus and concentrate on what is on offer. Tax is the biggest expense in our lives, the mortgage is the next one isn’t negotiable, the other is, so it is worth getting to grips with it.
Kirstie: I would say that if you have a good relationship with your bank and a good credit history start with them. That will give you a figure from which you can base your further research. It is difficult to just jump in and find one you need some sort of foundation.
Is it wise to have a survey done on a property you want to buy?
Phil: The building society or bank will do a survey but you have to remember that if you’re borrowing 80% of the purchase price they will only be interested in getting back that money. The market value is not relevant to them. If you are buying an older propert, a full building survey lets you know what is right and wrong about your prospective home. New builds, of course, come with building guarantees.
Kirstie: I’m not sure it’s that worthwhile if you own a flat because the problem could be elsewhere in the building. I know of people who had a structural survey done on a property and it passed. But in the roof, through the loft hatch, was a warning sign of asbestos. It cost £7,000 to remove that asbestos and it wasn’t picked up on the survey. You are often better off taking a trusted builder around your potential buy and seeking his advice.
So, if overseas money is coming here, what about UK money going abroad to buy foreign homes?
Phil: I’m cautious and hesitant because I think it’s complicated enough buying property here when you’re dealing with a system you understand, in a language you understand. Abroad it’s unlikely you’ll have experience of the quirks of the property business and the complexities will go over your head. Plenty do it and plenty have success. As ever, the greater the risk you take, the greater the potential for profit.
So you can buy a property in Bulgaria and double your money in 18 months, but you are doubling £20-30,000. That’s nothing compared to the size of transactions happening here in the UK.
Kirstie: Like Phil, I’ve always been circumspect about buying abroad. If you don’t have a vote or a say in the running of that country I tend to be nervous and I’m not a risk-taker but some are. I’d love a New York apartment but I just wouldn’t make that leap.
And lastly, if you had received one of those city £1 million plus bonuses, what would you have done with it?
Kirstie: I love where I live now so I wouldn’t be spending it on a new home for myself but I might buy a run-down place and do it up as an investment to rent out.
As for that New York apartment I’d need several more city-style bonuses before I felt financially safe enough to make such a commitment.
Phil: I’d retire! Or, maybe, in complete contradiction to my last answer, I’d buya place in Ibiza.
Has the arrival of big overseas spenders the likes of Roman Abramovich been good for the property market?
Phil: They are supporting the housing market and what goes in at the top feeds down through the system. The foreign buyer is here to stay it’s not difficult to see why.
The tax regime is attractive for the overseas buyer, the country is politically safe and in terms of geography and as a financial centre, Britain is fabulously well-placed. Foreign money is supporting the market and if tax laws were toughened up and targeted at these buyers the market would collapse, causing a problem.
Kirstie: You’ve got to accept it because it’s a way of life and we have a diminished manufacturing industry and no more oil, so we need to move with the times. Because of our history we have an attractive country this is the place of kings and queens and a lot of foreign buyers love that. They also bring spending money that goes to our restaurants and shops. This is a beautiful and unique country and this could be our economic niche market we certainly shouldn’t discourage it.
The number of first-time buyers is dwindling year-on-year. How much of a worry is this?
Phil: It’s not a crisis for the market, even though the average age of the first-time buyer is the late twenties or early thirties.
What I think it does show is more of a social crisis. Commentators might think otherwise, but these same people who are not buying their own homes are still spending a lot of money on rent. It is a case of priorities changing.
As it is, buy-to-let investors are satisfying the demand for a roof over your head. The danger comes from the length of time they stay in the market thus depriving it of stock. That noted, today’s first-time buyers have different priorities and values. They go to University and come out with debts. They have a lifestyle that is far more affluent than that of their parents and their parents’ parents. Those generations scrimped and saved for a deposit. They didn’t eat out twice a week and live off takeaways. That’s not to knock today’s younger generation, it just emphasises the changes.
Kirstie: It is a huge concern. When we first started filming Location, Location, Location, first-time buyers were mainly in their twenties, now they’re mainly in their thirties. The knock-on effect is that they will still be paying for their homes when they’re retiring. That means extra strain on a pensions market that we know is creaking.
There is no help, there are no tax breaks for getting married. I’m not married but if I did get married I would have two years to sell my property or face a huge tax bill because as a married couple we would be classed as owning two homes. As we’re not, we’re not affected. That’s wrong and the fact that married couples don’t pay inheritance tax is not an incentive to forming a family base, as we know people living together are more likely to part than married couples and therefore the family unit is undermined.