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As prices continue to trickle upwards in the UK housing market, 'could-be' sellers are gradually starting to take an interest in what their properties might still be worth, now that the proverbial dust has settled. As I think I said in my last entry, this is almost certainly a false dawn, but then who am I to stop people bailing out now while the window's open. But how exactly, in these strange market conditions, should sellers value their properties? Take what somebody told them it was worth 3 years ago and knock off 30%? Get some spotty little kid from a high street agency to lie to them? Use a Ouija board? Or maybe it's time to revert to the more reliable methods of the past.
Old-fashioned estate agents for example, love to regale us with tales of yesteryear, when buyers would 'visit the desired property at different times of the day, in order to assess all its aspects in variable light' and when prices were conveniently calculated by multiplying the average salary for that part of the world by 3 and then maybe adding a little something to the price if the cellar turned out to be stocked with good wine. These days, in most parts of the UK, this would leave you about 60% short of the asking price.
Landlords on the other hand, use a completely different method and one to which I too subscribe, in principal at least. In short, you take the gross annual rent of the property, and then multiply it by the average length of a mortgage (usually somewhere between 15 – 20 years) and Bob's your uncle, there's the true market value of your asset. But before you get too excited, let's work the numbers through. Average current rent in London per annum: 12,000 pounds; multiplied by the mortgage term, reveals an approximate value of between 180k and 240k. Try walking into an estate agency in West London with those sorts of numbers tucked under your arm, and they'll laugh you out in the flick of a Hawke's Row pinstripe.
So, are rents set for an explosion across the UK, or have prices still got a way down to go yet? Or maybe prices are playing a patient game, waiting, waiting for rents to jog their way upwards, eventually, once they've finished eating all the fallen fruit they're finding on the way. Time will tell, but personally I think we're looking at a very strong renter's market for the next 12 months, particularly in major UK cities. So existing landlords might want to downwrite anticipated incomes for 2010, or at least resist the temptation to raise rents; and renters? Well, enjoy.
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