Category Archives: viewpoint

Is the Death of Gazumping Greatly Exaggerated?

Posted on by

Moving house is rated as one of the top three stressful events in life, alongside death and divorce, heaven forbid. Just when you thought it couldn’t get any worse, along trundles the devilish duo of gazumping and gazundering. Derived from the Yiddish word ‘gazumph’ (to overcharge or cheat) these twin horsemen of the property apocalypse are the uninvited guests of a bull and bear residential property market. Saying that, while they strike fear into the heart of buyers and sellers, gazumping and gazundering are prime economic indicators that tell you a lot about the state of the economy, cost of borrowing and the supply of properties available to buy or rent.

Market Financial Solutions (MFS) surveyed a nationally representative sample of 524 UK adults, all of whom had bought a residential property in England or Wales within the past decade. The survey was conducted in April 2022 and found that 31% of property buyers in England and Wales have been gazumped at least once since 2012. This was worse in London (no surprise) where the figure was an astonishing 51%.

According to financialreporter.co.uk it’s not just about missing out on one’s dream home. Some 37% of buyers mentioned the collateral damage of having to still pay solicitor and surveyor fees even though the purchase never happened. Overall, 23% of gazumpees (or whatever the collective noun is) lost money in the process.

Mitigating the Risks
While you can and shouldn’t eradicate all danger in life, let alone the battleground that is property, Glentree have managed to mitigate most of the risks. For instance, when we took on the sale of a London property, about 18 months ago, let’s say in the region of £2million, we would have around 40 applicants beating a path to the door, in the short space of two weeks. This would produce at least five offers.

In such a scenario, we would advise the seller to set a guide price rather than a formal asking price. This encourages purchasers to offer more, since it’s within the bounds of reality.

Ordinarily, this would provoke a gazumping war and so as to avoid this and dignify the process, we organise for an informal tender whereby all willing participants are encouraged to make their best offer, subject to contract, along the lines of strict rules unique to Glentree.  These are designed to anticipate ‘spoiling bids’, i.e., offer terms from a shrewd purchaser which are arranged to secure ‘first place’. These can be negotiated downwards, leaving the seller with financial egg all over their face.

This can generate strong opinions, but the process usually brings an outstanding offer – after all, that’s why we’re in this game. The offer comes with a fidelity period, giving the buyer a great opportunity to spend money on due diligence and buy the property, without competing offers snapping at their heels.

As skilled property ‘matchmakers’, Glentree organises a buyer and seller face-to-face meeting to exchange a moral contract. A handshake seals the deal, on the terms agreed. We take great care to spell these out in exact detail, which helps to glue the parties together until the formal exchange of contracts.

Market Relatively Tranquil
Unlike the frenzied turbulence of recent years, today’s market is relatively tranquil. Instead of a queue for properties resembling that of a Harrods sale, the property will see a manageable ten viewers in the space of two weeks, resulting in one or two offers to purchase. Like finding the perfect job, house, or partner, you only need one.

The adage of not believing everything you read in the press has much truth.

We’re fed a constant media diet of economic doom and gloom, yet Glentree has experienced two recent examples of gazumping on a £10million sale and even more recently on an £18million sale, both in Hampstead Garden Suburb, London.

Although this doesn’t happen every day, it’s indicative of a) lack of supply and b) the eternal truth that quality properties are always in demand. Even with circa 6.7% inflation, a 5.25% lending rate and a plethora of loan sharks trying to mug the vulnerable borrower, you would expect more properties for sale with a diminishing amount of buyers, but the situation tells us otherwise.

One reason may be that the market is kept ‘on hold’ until there’s a reaction to the increase in lending rates. Many borrowers opted for the three-to-five-year fixed rate mortgages, which delays the economic pain for some time.

Interest Rates Held
Only yesterday the Governor of the BoE announced that the present interest rate level will stay at 5.25%, but I am sure there is another quarter point in his arsenal ready to impose on us in the next few months, in order to bear down on inflation.

Meanwhile, the opposite (but equally frustrating) process of gazundering is happening in the London micro-markets – there is slightly more supply here, especially of new homes, which are sprouting like mushrooms. Buyers are either being squeezed by the lending institutions or there is a chain of sales dragging down the buyer which can lead to cheeky (and loss-making) renegotiations at the finish line.

As always, there are chancers, who will exploit the current economic fragility to their advantage, at the expense of the seller. They will wait until the last nano-second and then renegotiate terms just before the exchange of contracts, often leaving the seller hung out to dry, with little choice but to reluctantly accept the lower terms.

We don’t approve of this tactic, but if the seller needs to liquidate their asset and release cash then they have to concede.

Although we try to identify these chancers early on, it’s not always possible, since they don’t come with a sign around their neck. Our belief is that even if you have exchanged a moral contract the deal will only hang together if the seller receives a gazumping bid of more than 3% of the previously agreed terms.

Other Land-Buying Protocols
Scottish and American land-buying protocols are designed to eradicate the gazumping/gazundering menace and are based around an instant exchange of contract, subject to survey and finance. However, even these systems can be abused by a Machiavellian purchaser.

The only effective way to eliminate this scourge is for the buyer to organise their finance by way of a mortgage offer beforehand and have an independent structural survey. The exchange of contracts can be arranged at warp speed (i.e., within a matter of hours) if the solicitors have got their act together and can prepare all the necessary documents.

Boy Scouts
Like the Boy Scouts, Glentree is prepared for every eventuality. We have a cadre of expert surveyors ready to carry out a survey of the property at a moment’s notice. The laws of the land, sadly, are inadequate in this area and still allow the nefarious practices of gazumping and gazundering, which can leave a seller feeling like they’ve been the victim of a Viking rampage crossed with a mugging. That’s why our normal practice is to insist that the seller’s solicitor assembles not only an EPC (Energy Performance Certificate) but an information pack which includes the property information form and up-to-date local searches from the presiding borough (which are kept current every 12 weeks).  This permits an exchange of contracts to be consolidated very quickly (even within hours) and reduces the chance of the buyer gazundering or gazumping the seller.

Like any other decision in life, buying a home is driven by emotion as much as finance. This fact alone can give rise to an incendiary reaction with much fall-out. All we can do is manage the process to give everyone the best outcome.

With the Bank of England raising interest rates is the medicine worse than the ailment?

Posted on by

Ok, the BoE were not the quickest off the mark to crank interest rates upwards in 2021/22 when the early warning signs of inflation were apparent, as demand rapidly picked up unexpectedly after Covid. But I think it is folly to increase them this week without giving the last thirteen increases a chance to make their full effect felt.

Fixed rate mortgages were first offered in 1989, in the middle of the then recession, and they have become very popular ever since. Particularly as interest rates had rock bottomed in 2020.

This effectively means that the effect of high interest rates will be less immediate and will probably take 12-18 months to fulfil their efficacy.

Relentlessly increasing them before this has had a chance to work, is like double dosing a patient with medicine that could exacerbate the harm done from the ailment.

Me thinks that the committee of the BoE have a twitchy finger on the tiller of the ‘good ship, UK Economy’ and maybe a more sanguine approach to the outlook would be well advised.

Undoubtedly, we are going to see more and more casualties that emanate from the effect of the credit crunch, and this will continue unabated until inflation and rates come down over the next few years.

Already, the direction of movement of the inflation rate is southwards albeit a little too slowly for some observers however, I think that time, the great healer, needs to play its part before we become too ‘trigger happy’.

The lenders are trotting out some interesting fixed rate mortgages which anticipate the downward trend in interest rates in a year or twos time and this will take the pressure off house owners and buy-to-let landlords, who are struggling at the moment with a high cost of borrowing not assisted by the cost-of-living crisis.

I personally, don’t believe that there will be a cataclysmic drop in values of residential property, as I think that they will probably ease by 5-10% over the next year to eighteen months, but not more than this.

What may underpin the market is a noticeable and persistent limited supply of properties available to buy, which should certainly serve to stabilise values.

Prior to any recession, in the past, there has been a noticeable increase in homes for sale accompanied by shrinking demand, and that is where values have subsequently fallen, precipitously. There are no signs of this trend at the moment.

The middle classes are considering selling their homes before the full negative effect of a change of government next year is felt, as they don’t want to be trampled in the stampede which could take place if the electoral polls continue to point towards a Labour Party victory in 2024.

Gove’s Urban Renaissance Plans Deserve Support

Posted on by

Just what are they putting in the taps at Wasteminster?

It seems that those in charge of housing policy need a nice, secure room, padded, for their own safety. As you know from these columns, the government’s approach to Britain’s housing crisis is schizoid, at best.

This week has been a proper corker.

First, our esteemed Prime Minister vows to lay off planning reforms, in a desperate bid to placate the ‘revolting’ back bench MPs and nimbyists. This is despite his promise to build a million homes by the middle of the decade, what a lovely soundbite, but still a fanciful aspiration at best.

Then Mr. Gove bursts onto centre stage and pulls a sparkling urban regeneration scheme for 20 cities out of a hat. Is this real or are we at Billy Smarts Circus?

No wonder we’re confused.

Gove’s ambitious plans for 50,000 homes in Cambridge were unveiled and immediately proclaimed “dead on arrival” by Andrew Browne, MP for South Cambridgeshire. The latter’s concern is that Cambridge will run out of water.  When will the ‘ludniks’ of the various water companies around the country at last organise a ‘water grid’ along the lines of the electricity supply arrangements, so that there will be proper distribution of water across the country instead of the present, parlous, system, where one county is like the Sahara and the other a monsoon?

He will need all the help he can get to avert an inter-party civil war.

More worryingly, the recent by-elections have shown the direction of travel of the electorate, and it appears that it’s moving away from ‘Toryville’, even though Sir Kier’s ‘Motley Crew’ could be even worse for the country.

I think that the duo of Sunak and Hunt need to change their appetite palette from mild Korma to ring burner Vindaloo, since their present timid approach to urgent government reforms is far too ‘librarianesque’ and needs to be ‘kicked up a notch or twelve’!

The festering lack of housing issue, asphyxiating regulations (as a legacy of the EU), and the intractable problems of burgeoning immigration, quite apart from hyperinflation and the cost-of-living crisis, will not be solved by timidity and restrained political correctness.

At this juncture, teetering on the edge of the political abyss, they have nothing to lose and everything to gain. You would need an electron microscope to try to find the hallelujah moment of the last four years of Tory rule, apart from the undoubted vaccine success.

Whatever you think about ‘Bumbling Boris’, his shambolic, rock-star persona was electorally very effective and as such, a good deal of Tory MPs can thank him for their present jobs.  Should loss of short-term memory deny them the truth, whatever his shortcomings may have been (and there were many), you cannot deny this undoubted record; two mayoral elections in lefty London, the Brexit vote, Leader of the Party, the Prime Minister’s job, a landslide victory in 2019 and even the Uxbridge by-election result which demonstrated that his following lingers beyond his political demise and is still tinged with stardust.

Admittedly, the ill-fated timing of the ULEZ policy by the hapless London mayor, greatly contributed to Tory success, but even so, Boris’s legacy in the constituency is tangible and real. No other politician would have such a collection of local ‘Only Fans’. Although Sunak and Hunt may be perfectly competent, their charisma bypass of plain vanilla is not going to excite the blue and red wall voters of the next Election.

If the Tories don’t awake from their sleepwalk then, by default, the lackluster opposition are going to be handed the ultimate, underserved, electoral prize. Effectively it will be Dad’s Army trying to defeat a German precision, well-armed battalion of troops.

It’s quite an achievement to make the dull-as-dishwater Sir Keir Starmer look like a winner by comparison, but I do hope that Mr. Gove succeeds with this housing initiative. Yes, he’s Johnson’s nemesis, but he’s an unstoppable force of nature and will make things happen if he is allowed.

Let’s encourage this measure since the sooner the housing problem is addressed, the better off we will all be.