Homeowners who bought in the 2007 property boom overpaid by 45 per cent
02-10-2014
Written by Marianne Curphey
So confident were homebuyers in the 2007 property boom that prices would continue to rise that many paid up to 45% over the asking price in order to secure the house they wanted, a new report reveals.
Researchers say a cap on home loan-to-value ratios should be considered to prevent this happening again and over-bidding to become rife.
Professor Michael White, of Nottingham Trent University, and Dr Sotirios Thanos, of University C
ollege London, made the recommendation as part of a study into the difference between selling and asking prices of properties in first-price sealed-bid auctions where the highest bidder wins the property. In market booms the highest bidder often overestimates the value and overbids.
Professor White, an expert in real estate economics at Nottingham Trent University’s School of Architecture, Design and the Built Environment, said: “It’s simply staggering that during the boom people were willing to pay by such large amounts over the asking price.
“It illustrates clearly the investment-driven mentality of buyers. People were willing consistently to pay over the odds in the expectation of continuous house price increases.
“Undoubtedly liquidity played a major role and a key policy question may be whether or not the Government should place a cap on loan-to-value or loan-to-income ratios to avoid a similar situation.”
Separate research commissioned from Cass Business School by London Central Portfolio (LCP) found that the 3 per cent stamp duty threshold at £250,001 was currently distorting prices that sellers could achieve. It reveals that there are 930 per cent more transactions between £240,000 and £250,000 than between £250,000 and £260,000, at which point transactions begin to resume a normal pattern, based on Land Registry’s Price Paid Data.
It found that sellers may have to wait 2.5 years to get a fair price for their property or be forced to sell house at up to a £10,000 less than they might have expected to receive without such a threshold being in place.
By Marianne Curphey