10 Oct 2008
Investors who have lost faith in the banking system are turning to property as a safe haven for their cash.
Estate agents have identified a growth in interest from cash buyers, who want something tangible for their money rather than depositing it with banks they no longer trust.
The trend is emerging in all corners of the property market, according to one nationwide agent, from high-end mews houses in Knightsbridge to dilapidated two-up two-downs in the East Midlands.
Lindsay Cuthill, head of the southwest London office of Savills estate agents, said: “Ten days ago a wealthy, well-known businessman seeking to buy a mews in Chelsea told me, ‘I feel my money is safer here than in the banks’.”
Robert Billson, head of Savills in Nottingham, said: “There are people with £50,000 who would rather buy a derelict house and board it up for a while than put their money in an Icelandic bank right now.”
Buyers with cash are in a stronger position to negotiate price reductions than those who need mortgages.
Liam Bailey, head of residential research at Knight Frank, another agent, said: “We are seeing a huge amount of interest from investors, partly because they believe that bricks and mortar are safer than banks and stocks and shares in the current climate.” Financial advisers highlighted the dangers of buying as an investment in a falling market, but acknowledged that there was “some logic” for long-term investors with cash to buy now, provided that they are able to secure a bargain.
Buyers are able to negotiate reductions of as much as 20 per cent on nervous sellers’ asking prices if they have the cash ready, agents said.
Mark Dampier, head of research at Hargreaves Lansdown, an independent financial adviser, said: “With property, you can feel it, touch it, see it and live in it – you know it cannot be taken, so there is some degree of logic to buying now as opposed to depositing in banks if you have the money, although it might all end in tears.”
Halifax yesterday announced that house prices had fallen by 13.4 per cent in the past year, the largest annual decline since the bank began compiling such figures in 1987. Prices fell for the eighth month in a row in September, it said, reducing the average value of a home by more than £2,000, to £172,000.
Meanwhile lenders continued to dent the confidence of homeowners with rate increases yesterday, despite the Bank of England’s half-a-point base rate cut on Wednesday.
Abbey has raised rates on its tracker deals for new borrowers. Britain’s second biggest lender increased rates by 0.5 of a percentage point, blaming the cost of wholesale borrowing.
Experts said, however, that the market downturn made the case for investment in residential property “more compelling”.
Mr Bailey said: “Now that capital prices are down 15 to 20 per cent on last year’s values, and even more for new-build property, the investment case is more compelling for residential property.
“Income yields have moved up to 8 per cent, which suddenly makes sense.
“Now that the investment case for residential property has been underpinned investors are comparing it to paper investments – money in the bank or equities – property suddenly seems a safer investment.
“This trend,” he said, “is being led by existing investors who have the experience to cope with the current market conditions.”
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