Property Magnate's house buying tips

Use 3.5 times salary plus a deposit of 5 to 10% of this amount. If you haven’t got the deposit or can’t find somewhere within this value you can’t afford to buy! Do not stretch yourselves to 5 or 6 times salary or get an interest only mortgage. Given your future earnings potential, could you afford the repayments if the interest rates doubled which could happen over the mortgage term. Then, get your mortgage offer in place ready to proceed quickly when you find the right place.

a. What is the typical wage in the area – check local papers and employment agencies. A sensible maximum mortgage is 3.5 times salary . Add 10% and you have what the typical house price should be.
b. Research rental prices. Take the weekly rent for similar properties and add three zeros to see what the house is worth. Eg. If the house rents for £800 a month it’s weekly rent is about £200. Add three zeros and you get £200,000 as a value. Renting should be more expensive than buying. If monthly rents are cheaper than mortgage payments for similar property then the market has gone bad!

Check out what houses have sold for in the last 5 years using the various free house price websites. If there has been a very fast rise in prices ask why? Is there a new train station nearby? Is there some massive redevelopment? If not then it may have been an investors hotspot. Avoid these areas as the prices may have been pumped up by amateur investors. Do not fall for the Estate Agent claptrap that prices will continue to rise so buy now or you won’t be able to afford it next month. The market is cyclical ie. it goes up and down.

Just because one house on the street has sold for a ridiculous amount that does not mean the price is achievable for all the houses. Yet, many sellers will take that view and inflate their asking price. Don’t be suckered into believing that these marginal sales reflect the true value of the property.

Houses may be bought then put on the market again very quickly with a view to the new seller making a quick profit. They may have bought the property at “Below Market Value” by paying cash etc. and then done some basic work such as a new kitchen/bathroom and a paint job. Then, it will be back at the market at an inflated price. For example, they may buy for £150k, spend £20k and put it back on the market for £220k. A naïve buyer may put an offer in for £200k and think they are getting a bargain whereas the seller may have just made a tidy £20k after fees. They rely on naïve buyers … don’t be one! Find out when the property last sold and what it sold for.

How long has the Property been on the market? How desperate are they to sell? Why are they selling? Are they in a chain? What did they pay? How much mortgage do they have on the property? Use the Land Registry website to find out this last point. If they have a very large mortgage they will be less open to offers as they want to cover their debts. But if they bought 10 years ago and they have a very small or no mortgage there is more room for negotiation.

The asking price is just a figure made up by the Estate Agent and Seller based on what they think the current market will take. The market relies on “Normalisation of the Abnormal”. In other words, buyers will accept a selling price today that five years ago would have been ridiculous. Naïve buyers will use phrases such as “That’s a good price!” when a few years ago it would have been a silly price.

If you are not embarrassed by your first offer it is too high. Some say that your first offer should be 10% below the asking price with a view to achieve 5 to 7% below as a sale price. Rubbish!!! Use the price assessment techniques to determine the true value. Then, offer 20% less than this! Yes… really! If it is refused ask the agent if you can view other properties and do so. When they come back to you looking for an increase then you can start negotiating. There are still plenty of naïve people paying prices they can’t afford for overvalued property. Therefore, expect to lose properties to these over-enthusiastic buyers. Don’t worry though. As people become more aware of the price bubble and the future direction of interests rates education will improve and so will your success as a buyer.