September 15, 2010 at 9:33 am #55852
In an exclusive interview for Idealista News, Ed Williams, CEO of rightmove, the largest real estate portal in the United Kingdom and one of the leading companies in the sector worldwide, explained how the British housing market has managed to successfully weather the crisis that began two years ago. When commenting on British enthusiasm for the Spanish market, Mr Williams, tongue-in-cheek, explained that what attracts the British most to Spain is the good weather, and as yet climate change has not affected the weather in Britain to the extent that they can enjoy it at home.
Question: How has the real estate market developed over the last 10 years?
Answer: Everyone in the United Kingdom dreams of owning their own home, which is why the percentage of homeowners has always been very high, even though very few new homes are built each year. In fact the number of homes built and the number of families which have moved home over the last 10 years has been relatively low, and not a “boom” like the one we saw 20 years ago.
For this reason the past seven years has seen a buoyant market with significant increases in house prices, even though the rate at which people changed homes, or houses were build, was not high. In 2008, prices fell by 20%, and the number of sales plummeted, although the market improved surprisingly quickly in 2009 and 2010. Prices and sales are much lower than in 2000-2007, but they are picking up.
Q: What challenges does the British real estate market face in the short term? How will price and sale levels develop over the coming months?
A: At the moment the market is stifled by a lack of available mortgages, as the largest mortgage providers in the United Kingdom are either unable, or unwilling, to loan large amounts of money. This mortgage squeeze will depress house sales and prices. However, even though the economic situation is difficul t, tax increases and unemployment are not, by themselves, enough to explain why the demand for mortgages is so weak even though there is financing available.
For this reason I think the market has entered an important new period, in which either the demand has adapted to a situation of low mortgage financing, or we are heading towards a repeat of the situation we saw at the start of the 90´s, when banks wanted to loan more but people could not afford them, or were nervous about buying. In any case, it will be the third-worst year of the last 50 years – although fortunately it will be better than the last two years, which were the worst years of the last five decades.
Q: How did the United Kingdom break the downward spiral of price that started months ago? Were there many homes up for sale? How did the demand react? Are you concerned about a double-dip?
A: Towards the end of 2008 people were getting more and more worried, and a large number gave up the idea of moving home, which meant that the number of homes that came onto the market was the lowest that had ever been seen in the history of the United Kingdom. There was a lack of new homes for sale (and also a stockpile of unsold homes). Mortgages were cheap if you were able to obtain one. However, the people who were actually in a position to take out a mortgage, and who wanted to move home, found that there were very few properties on the market to choose from.
It is not possible to rule out a double-dip in the market at the moment- in fact house prices are weak and it is likely that they will continue to be sluggish for a while. There are no immediate signs that the number of homes for sale is going to rise significantly in the near future. At any rate, we are having to shelve a lot of transactions. As oppose to a normal market, at the moment one out of every ten homeowners who would like to change homes has not been able to do so, and I think that it is this lat ent demand which will help prevent a sharp fall in the market.
Q: How do people in the United Kingdom view Spain and its real estate sector? Has the way the British view our country changed over recent years?
A: The most difficult challenge facing people in the United Kingdom at the moment is trying to find the money they need to pay for the homes they bought abroad, whether in Spain or in another country. The fact that the euro has increased against the pound exacerbates this problem, although buying a home outside the Eurozone could be even more risky in the long term. However, the main reason that the British enjoy living in Spain is the weather, and so far climate change has not affected the United Kingdom enough to allow them to enjoy it at home!
Q: The British Prime Minister, David Cameron, has announced an increase in the capital gains tax from 18% to 28%, starting from a threshold of 10,100 pounds (around 12,000 euros). How do you think tha t this will affect housing? What other measures has the new government has brought in that will affect the real estate market?
A: We think it will have a positive effect. The capital gains tax on second homes was cut from 40% to 18% two years ago, which means that the final amount to be paid after this increase will actually be less than what it used to be. In addition, all the other taxes have also been increased, so that compared with the taxes on salaries of 40% or 50%, 28% seems quite low.
It must also be remembered that these changes came into force immediately, so that people were not able to avoid paying them for houses they already owned. It would have been a lot worse if the tax had been increased to 40% or 50%, and the increase had come into force next year, in 2011. In that case, there would have been a deluge of homes up for sale to as owners tried to avoid paying the tax increase, and this would have heightened the risk of a double-dip in the hous ing market.
Q: How much does a 90 m2 residential property, in good condition and in the best part of central London, cost? What expenses are involved in buying and selling a home in the United Kingdom?
A: Prices vary enormously, and there is no metric standard in the UK. If you visit our portal rightmove.co.uk you can see what is available in London. The main expense when buying a property is a tax which can range from 0%, for very cheap homes, to 5% for the most expensive ones. Other costs include the legal fees, which usually come to several hundred pounds, the mortgage fees which are also around several hundred pounds, and moving costs. Home sellers do not have to pay any tax for selling their habitual residence, and the legal fees are less than those of a buyer. The main expense for a home seller is the real estate agent’s commission, which ranges from between 1.5% and 2% of the value of the property.
Q: How many people live in rented acco mmodation, and how many live in their own home? How many homes used to be sold a year, and how many have been sold this year? How many properties are sold through a real estate agent?
A: The lease market has grown although it is still small when compared to the number of people who own their own homes (around 22 million as oppose to 3 million). With regard to sales made through a real estate agent, over 90% of sales, excluding new home sales, take place through a real estate agent, while less than 10% do not use a real estate agent’s services. Of these, the majority are sales of properties which are sold to the tenant who is living in the property as, by law, tenants have the right to buy the property they lease. The proportion of home sales where the buyers and sellers know each other, or of private home sales, is virtually nil.
Q: How do mortgages work in the United Kingdom? (mortgage terms, interest rates, commissions etc)
A: Most mortgages have a 25-year mortgage term, and a variable interest rate. Before now, banks used to offer large discounts on interest rates for the first two years in order to attract buyers with artificially low mortgage payments, and to make it more difficult for new competitors to break into the market. Most mortgages are now sold directly by a financial institution, which means that there is no commission to be paid. This is a tough market, and the current percentage of mortgages that are sold by real estate agents and independent financial consultants is less than it was.
Q: Are there any grants for homebuyers in the United Kingdom?
A: No. There used to be some schemes to help public sector workers, but they are being phased out due to the current financial climate. The only favourable tax treatment for housing is that if you have lived in the property that you want to sell for the last two years you do not have to pay any capital gains. The taxes you have to pay when changi ng houses, despite the highs reaching during recent years, are usually much lower than in the majority of European countries.
Q: Has the arrival of Google on the British real estate market affected you?
Q: rightmove, which had a turnover of 70 million pounds last year (83 million euros), has been listed on the stock exchange for several years. In your opinion, what are the advantages and disadvantages of being listed on the stock market for a real estate portal?
A: There are some small differences. If we compare rightmove´s situation now to how it was several years ago, the most important difference is not that we are listed on the stock market, but that the company is bigger. What it comes down to in the end is that if you achieve rapid growth and increased profits your investors, whether they are companies or private individuals, are going to be happy. And if you don’t, they are going to be unhappy.
September 15, 2010 at 11:34 am #100702
His comments don’t make much sense and he contradicts himself.
“number of families which have moved home over the last 10 years has been relatively low“
“For this reason the past seven years has seen a buoyant market“
“At the moment the market is stifled by a lack of available mortgages“
“…even though there is financing available“
“For this reason the past seven years has seen a buoyant market“
“it will be the third-worst year of the last 50 years – although fortunately it will be better than the last two years, which were the worst years of the last five decades”
“there are no immediate signs that the number of homes for sale is going to rise significantly in the near future”
“Prices and sales are much lower than in 2000-2007, but they are picking up“
“The British Prime Minister, David Cameron, has announced an increase in the capital gains tax from 18% to 28%”
“We think it will have a positive effect” (my comment:- Oh please. Who is he fooling. Increased taxation improving the market!!!!)
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