Barratts, one of the UK’s largets house builders, typifies the problems facing those exposed to the UK Housing Market. In the past 12 months, they have seen the price of new homes drop 6% to £183,000. However, more damaging than the fall in prices is the slowing down of sales, leaving Barratts with lower profits and cash flow problem.
The drying up of mortgages has particularly affected first time buyers and has led to the lowest number of property transactions for 30 years. The temporary increase in the stamp duty rate to £175,000, is unlikely to do much to kickstart the economy.
To Try and Increase Sales Barratt, like other property sellers is offering shared equity.
For example, you buy a 75% share in a house, with Barratt retaining the other 25%. The housebuilder gives a 10 year interest free loan of 25% of the house value. If the house price falls, you will still have to pay this 25%
They are also offering homeowners some insulation against falling property values, if a house is sold within 3 years, Barratt will pay uptop 15% of the house price loss.
It remains to be seen whether initiatives like this will revive the housing market. The fundamental problems - uncertainty of falling house prices, difficulty in getting mortgages, low affordability, are still likely to overshadow these offers.
If I was a home buyer, I would not rush to take advantage of the government’s one year stamp duty holiday. I think that prices will be lower by 10-15% within the next 12 months. I would wait for 9 months before buying, and I think many others will continue to wait on the sidelines.
2 comments ↓
So you buy a property from Barratts at say 200k (150k now,50k later). If the market falls just another 10% Barratts will pick up 3k of your 20k loss and you stll owe them 50k!! . I’ll bet also that if you accept this ‘deal’ you cannot negociate an upfront price reduction on the property. Result is negative equity is virtually guaranteed from day 1 and the Builders and Banks supporting this will expect the Taxpayers to pick up the Bill
The Barratt’s deal is rubbish because the discount they give you is “fake”. Have a look at how much the same property retails for on the second hand market and you’ll soon see that the Barratt’s deal is just hot air.
It’s a bit like me giving you 10p off a Mars Bar I am selling for 60p. You could go to the Newsagent next door and buy the same Mars Bar for 30p. Their numbers just don’t add up.
These deals are not an effort to revitalise the UK property market. They are just a marketing promotion.
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