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Why most properties sell at higher price than the original
22 Mar 2022
Why most of the properties are sold out at higher price than the original price?
According to a new study, at least 40 per cent of the properties in the UK sold for more than their asking price. Essentially, this massive difference between asking price and selling price in the UK estate market has to do with the change in buyer preference, the change in buyer demand, the imbalance between demand and supply and the frenzy in the property market due to the uncertainty around the Covid-19 pandemic. Of course, a few other factors are also at play, such as the lower mortgage rates, the rising property prices and the expected rise in inflation. As perestate agents in Oakwood, here are some reasons why most of the properties in the UK were sold at a higher price than the original asking price.
Change in buyer demand
When the Covid-19 pandemic hit, people were forced to stay indoors. They were forced to stay at home and eventually the concept of work from home came about. As people spent more time at home, they realised that they want to change and improve their homes, and their lifestyles. Most homeowners and tenants were looking to move into bigger and better homes. One of the biggest demands among new buyers and tenants was spacious homes.
People were tired of being cooped up indoors, so if they had to stay home, they at least wanted to have larger surroundings. With that being said, the second most common buyer demand was outdoor spaces. People were looking for homes with private gardens, spacious terraces, balconies and patios. While the buyer demand changed drastically and pretty quickly, the supply remained relatively low. Again, this had to do with the fact that many sellers and homeowners were uncertain about the estate market during the Covid-19 pandemic. So, while the number of properties on the market was relatively low, the buyer demand was continuously increasing. This disparity between demand and supply of property in the UK is what led to the disparity between asking price and selling price.
Change in buyer preferences
Initially, when the Covid-19 pandemic started, homeowners and tenants were looking to move out of the city and into the outskirts and suburbs. Initially, people used to live in the city to be close to their place of work and to reduce the time needed to commute to work. Once the concept of work from home came about, people no longer had to travel to work. That is when the buyer preference changed from city centre properties to properties in the boroughs and suburbs. Also, it was relatively more affordable to buy a bigger property in the suburbs as opposed to the city centre.
Also, the cost of living in the suburbs is much cheaper than the cost of living in the city. For instance, the average cost of buying a property in London city-centre is around £599,000 whereas the average cost of buying a property in the suburbs and outskirts of London is around £452,000, essentially a 30 per cent difference. As buyer preferences changed, people started moving out of the city and into the suburbs – again, the demand was high whereas the supply was low, which is what led to the difference between aking price and selling price.
Now, as offices are opening up, employees will soon start going back to work. Again, people will start looking to move close to their place of work, thus the demand for properties in the city will start to rise. Keeping with the disparity among demand and supply, the prices of city centre properties will start to rise in the near future, which might further lead to the massive disparity between selling price and original asking price.
Lack of supply
In the UK, there is a lack of supply in the housing market. While the UK government is doing their bit to push housing projects and is pumping billions of pounds into the housing market, currently the supply is much lower than the demand. For one, there is not a lot of space left in the prime areas in the UK, which is why the price of the existing properties in such areas is on the rise.
Also, the UK government is very particular about preserving their greenbelts, which is why many areas with massive greenbelts are actually protected from further construction. Lastly,in theory, people are in favour of more homes being built in the UK. However, people do not want more homes and apartments near their property due to congestion and a drop in property value. Thus, there is a lot of backlash when it comes to creating new housing accommodations in the UK, which is what furthers the disparity between demand and supply. As the supply continues to remain on the low side, the demand continues to rise, because of which people get competitive and make offers that are much higher than the asking price.
The low-interest rates in the UK have made buying a house much cheaper; couple the low-interest rates with government schemes such as the stamp duty holiday and the mortgage guarantee scheme, buying a house in the UK became very affordable. In 1992, the interest rate was 15 per cent, which was definitely soaring high.
Now, in 2022, interest rates have dropped as low as 1 percent. Comparatively, the interest rates are very low which makes buying a house a very fruitful investment. It is safe to say that despite the rising prices, it is the low-interest rates that have made houses in the UK relatively affordable. Due to such low-interest rates, potential buyers were able to take out higher loans and mortgages, which in turn allowed them to increase their offers.
Also, the stamp duty holiday gave potential buyers a major tax break while the mortgage guarantee scheme allowed potential buyers to secure a mortgage by paying just 5 per cent of the total value as the deposit. In simple words, in order to secure a good deal, potential buyers and investors were willing to pay a little more.
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