Angels Den Blog

As an entrepreneur, you undoubtedly perk up at the suggestion that a property market recovery is right around the bend. You know that the property market has a huge impact on the overall resilience of the economic landscape. If a genuine recovery were to be in the works, consumer behaviour would indubitably change, banks would loosen their grips on the purse strings, cash flow would once again permeate economic enterprises, and business profits could be right around the corner…

But this begs one critical question: is the news of a property market recovery real, or is it merely wishful thinking?

The Truth behind a Property Market Recovery
According to the BBC, a property market recovery is indicated by statistics from the Royal Institute of Chartered Surveyors (RICS) that show a falling number of properties falling number of properties on the market and a rising number of buyers interested in them. Activity is up and supply is down—just the formula needed for a property market recovery.

Another snippet of news reported just a couple of days later indicated that figures from the Council of Mortgage Lenders (CML) showed that the number of mortgages for home purchases has risen.

Of course, the flip side of this is that these numbers are still significantly shy of the figures from just a year ago, and (more importantly) to turn a window shopper into a bona fide buyer, the interested party now needs to come up with 25 per cent of the home’s value as a deposit—a figure that is significantly higher than in previous years.

So is the property market recovery made up of 25 per cent wishful thinking?
At the peak of the market, a buyer could quite easily find a bank willing to lend him or her the money for a home purchase. A deposit of 5 or 10 per cent was all that the buyer needed—and if he or she found this too much to scrape together, then there were always the 100 per cent, 125 per cent, and self-certification mortgages from which to choose. Entrepreneurs in the property refurbishment, renovation, and maintenance sectors enjoyed the boom created (at least partially) by these mortgage products. Of course, some of this lending was wholly irresponsible: a buyer putting him or herself in negative equity from day one in the hope that the market will continue to rise is an accident waiting to happen. Nevertheless, flawed as such mortgages were, they resulted in a run on properties—and more sellers felt that they could actually afford to buy and sell their homes.

It is for this reason that the news of a property market recovery is to be welcomed—albeit with some reluctance. Banks are no longer lending quite as liberally as they used to and only qualified buyers need to apply for loans. What is today being hailed as a property market recovery may truly be little more than savvy investors bankrolling agents to take over soon-to-be-vacant properties. It may also be little more than homeowners who simply cannot afford to hold onto their properties any longer doing their level best to get at least some return on their initial investment. It is highly doubtful—especially in light of last year’s property figures—that a genuine property recovery is in the works that is sustainable beyond the investor purchases and on-edge homeowner sales.

Of course, hope springs eternal and, as an entrepreneur, you know that it doesn’t take a lot to nudge the market one way or another. So perhaps simply the idea that there is some stabilisation—that the market might at least have bottomed out and that a property market recovery was at least on the cards—could generate some upward mobility in sales. If this were to be followed with a genuine effort from the banking sector to produce affordable mortgage products (after all, 25 per cent is a little steep and the first-time buyer really needs a break in the form of a 90 or 95 per cent mortgage), we might at least be able to begin to hope for a long-lasting recovery.