The housing market has ground to a halt because overly optimistic sellers are locked in a stand-off with cautious buyers struggling to get a mortgage.
This month, estate agents reported the biggest jump in unsold properties since May 2007 ? with agents having an average of 74 properties each, up from 70 last month.
Yet sellers have increased asking prices on average by 1.7%, or ?4,032, in April alone, according to Rightmove.
Experts say homeowners must start reducing their asking prices if they want any hope of selling their property this spring.
Paul Diggle, a property expert at Capital Economics, says: ‘People need to stop thinking of their homes as a cash cow and start being more realistic. Profit on property used to be a one-way bet, but that’s not the case anymore.’
‘We got ?10k off’
Luke Rudman and his partner Michelle Harvey, both 26, pictured above, have just bought their first home in Melksham, Wiltshire, after the sellers knocked ?10,000 off the asking price.
The property was on sale for ?145,000 a year ago, but the owners gradually had to reduce the price to ?139,500 in September and finally accepted Luke and Michelle’s offer of ?135,000 last month. The couple saved for five years to put down a ?20,000 deposit, worth 15% of their property. Their broker, London & Country, found a four-year fixed-rate loan with Abbey at 5.69%, costing them ?718 a month. Mr Rudman, an accountant, says: ‘We were anxious not to pay more than the house is worth.’
The Easter rush is cancelled
The Easter period traditionally marks the start of estate agents’ busiest time of year.
Buyers are becoming increasingly cautious because of fears that interest rates could suddenly start rising.
In recent weeks a number of leading economists have warned that the Bank of England base rate could rise from its historic low of 0.5% to around 2% by the end of the year. Concerns about the wider economy, with 2.48 million people out of work, are also making buyers apprehensive.
And those taking out a new mortgage face putting up at least a 25% deposit to secure the cheapest deals. Many have seen the equity in their current home eroded by price falls.
Leading housing expert Henry Pryor says: ‘In large parts of the country, house prices are still around 11% down on their peak in 2007.
Many people who bought around 2007 will now be close to negative equity ? where their mortgage is more than their house is worth ? and so can’t move even if they wish to.’
If someone buys a property with a 10% deposit today, and prices fall by 5% over the coming months, they could be trapped in their home because banks currently require 10% equity to remortgage.
Average house prices have fallen by 1.7% in the past year, according to Land Registry figures, but there is a huge regional variation.
Prices in the North-East fell by 7.1%in just 12 months, in the West Midlands they fell by 5.4% and by 4?% in Yorkshire and the Humber region. Yet prices in London were up 3.2% over the same period, illustrating the enormous divide that exists between London and the South-East and the rest of Britain.
Experts say the housing market outside London will remain sluggish throughout the year, with little improvement in mortgage availability and the possibility of further price falls.
Household finances will continue to be tightly squeezed, with families feeling the effects of higher taxes and wage increases, at 2%, struggling to keep pace with inflation at 5.3%.
If interest rates rise more sharply than expected, this could prove a toxic mix for many families who might be unable to afford their mortgage payments.
All this is likely to make conditions even tougher for house sellers. Capital Economics predicts house prices will be 5% lower in December 2011 than in December 2010, and will fall a further 7?% throughout 2012.
Miles Shipside, director of Rightmove, says: ‘With conditions set to get even worse later this year, spring offers the best opportunity for sellers to achieve success ? but only if they embrace serious sales tactics.’
There are three main ways that sellers can increase their chances of offloading their property ? keep the property price low, emphasise its unique features and ensure the house is immaculately presented.
‘The asking price has to look like a real bargain, rather than just competitively priced. With the transparency of the internet, buyers can easily judge which properties are overpriced,’ adds Mr Shipside.
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By Lauren Thompson
