Playing the long game could pay off for first time home buyers - David Alexander

The last full decade – from 2011-2020 – was characterised by significant centenaries related to conflict and disaster: sinking of the Titanic (1912), outbreak of World War One (1914), Battle of the Somme (1916), Spanish flu (1918) and Treaty of Versailles (1919).

Our present decade is, and will continue to be, more about marking the 100th anniversary of major economic events, most of them bad and culminating in the American stock market crash of 1929.

The latter proved, if proof were ever needed, that rises in the value of tradeable assets do not continue indefinitely and that recovery – when it does happen – can sometimes be long and painful: it is said two decades passed before American real estate returned to the value it held at the time of the Wall Street peak.

However, last week’s prediction, in this column, of a “correction” in Scotland’s residential property market should not be taken out of context. A mini-Wall Street, nor anything like it, is not on the horizon but the ongoing increase in prices which – contrary to all expectations has continued for 18 months – is likely to come to a halt sooner rather than later and in some instances values may even fall back, although not to any significant degree.

This will not, of course, affect the vast majority of home-owners who plan to stay put at least in the short- to medium-term. Neither will most of those compelled to move by circumstances experience a net loss if they are swapping “like for like” properties in terms of size/quality/location.

A market breather will even produce a set of winners, namely first-time buyers, too often the “Cinderellas” of the housing market. But the time may soon be near when they, too, get to go to the property ball.

Without equity from a previous sale behind them, life is usually tough for FTB’s at the best of times but especially so in the type of market that has existed since the summer of 2020. FTB’s often find themselves under extra pressure to make high offers (sometimes higher than is sensible) just to “get on the first rung of the ladder” on the basis that paying that bit extra on a mortgage is more sensible than wasting “dead money” on rental payments.

The experience of the daughter of a friend shows another side to the story. Hoping to buy for the first time, she has become unpleasantly surprised by the price levels in a part of the West of Scotland not particularly known as a property hot-spot. However, despite the desire to change status from tenant to owner, she has decided to play the long game and wait for the moment when, she believes, there will not be the same level of demand and vendors are more likely to be more amenable to sensible offers. Despite the high prices being demanded now, Home Reports have shown how, in some instances, earlier owners had to sell the properties for less than they paid for them, the most recent examples resulting from the financial crisis of 2008. Like me, she is not anticipating this situation to reoccur but believes a time will come when market advantage will switch (even if for a limited period) from vendor to buyer, giving her a better chance to secure the right property at the right price.

In these circumstances her position as a tenant, rather than a home-owner, is seen as an asset, not a liability. Rather than dead money, paying rent for the time being seems more sensible than taking on a long-term mortgage that will stretch her finances on a house or flat that might, in a few months’ time, be seen to have been overpriced. And unlike competing bidders who currently own a home, a tenant has the advantage of being able to quit his or her present property by giving just one month’s notice.

This is something all vendors might like to note should they need to sell when there may be less buyers around than there is today. With a mortgage approval in principle, an offer from a first-time buyer is the one least likely to come with caveats (e.g. related to move-in dates), resulting in a seamless and stress-free transfer of ownership.

As any property professional – or layman with a history of frequent house-moves – will tell you, the highest offer is not always the best offer.

David Alexander is managing director of DJ Alexander