FTB with offer accepted - pull out or reduce offer?

[ks999]

We are FTB and had an offer accepted on a house in east London for £750k right before the lock-down began. We are getting a full building survey done tomorrow and our mortgage provider only needs to conduct the lender's valuation. The sellers are downsizing to another property in the area. They bought the house for just over £200k in the mid-2000s.

We're very concerned about the possible decrease in house prices due to Covid-19 and were thinking about reducing our offer to £700k (potentially less if the building survey comes back with major issues) - this seems fair to us as most forecasts are predicting a house price decrease of between 5% to 20%! However, this is a big reduction and may be unlikely to be accepted - so we are wondering if it would be better to simply pull out at this stage.

What's your living situation at the minute? If you are renting and have a secure job (which it sounds like you do) I'd always choose to buy. Yes the property value may decrease in the short term but this isn't an issue unless you need to sell (provided you are making your mortgage payments). In time the value will recover. If you like the property get on the ladder, it's easier to move about once you're on it. I do understand how you feel, as there is always doom and gloom on house prices. I had the same worries when we first purchased.

750k is a lot for a ftb. May I ask what jobs you do??

I’m in the same position as OP - I asked for a reduction, and my seller agreed. I would not have continued with the purchase otherwise.

@Loofah01:

"you're NOT in a superior position than the seller" - Actually, in this instance, they are. There's a reason it's called a "buyer's market". When there are clear signals that the housing market is about to turn negative, the buyer has the upper hand and should press this to their advantage. Given that the OP has no chain, finances available, strong budget and is in no hurry to move, the OP has the advantage.

If the market were stronger and you were selling, I bet you'd sell to the highest bidder/one paying cash depending on your requirements.

"no-one knows what is happening to the market I find it outrageous to suddenly ask for a reduction"

People have a fair idea there's a downturn coming. The question is how bad.
www.thisismoney.co.uk/money/markets/article-8212455/Housing-market-expected-fall-sixth-thousands-Britons-lose-jobs.html
www.telegraph.co.uk/business/2020/04/12/average-house-price-slump-30000-market-frozen-covid-19/

@ks999 If I were you, I would ask for 10% off minimum. In the best case scenario, all predictions point to house prices falling 3-4%, worst case, 20%+. You don't want to be caught in negative equity for a decade! If they accept, you save £75k, if they don't let the market speak and maybe you'll pick the same apartment or something similar up for anything between £720k - £600k in a year's time. Either way, you're doing well.

I'd pull out. That is an expensive house which has shot up in value and the owners have made a killing. Would it bother you if the price dropped by 10 or even 20 per cent in the next year or so. . If not go ahead.

Crazy how emotional some people get about house prices. There are no ifs and buts that house prices will be affected by all this, and a decline is going to benefit the vast majority of people.

Jesus, just walk away.

Now is not the time to be spending that amount on a house unless you’re desperate to move now.

Just wait and you could be looking at 550 or 600 in a few months.

And I’d also ignore the sellers on the thread - EA are going to be going bust all over and will likely be desperate for business in a few months. Highly unlikely any EA or sellers will be turning anyone away for the sake of it.

London is always a tough one to call. When the 2008 financial crash happened everyone expected the housing market to tank. It didn’t it flattened for a year or so then accelerated before flattening again in 2015 and picking up again in 2019.

There is always a supply and demand issue in London. E London is v popular and a house sounds like a long term investment.

Flats with huge service charges to sold to BTL international investors are a different category.

10% drop is a big chunk and might be realistic. I am not sure why everyone says it will not be noticed in the long term - £75K most definitely would.

Wait for the survey. The buyers will be expecting this - they might well be renegotiating the price on the place they are down sizing to. They might be expecting you to pull out altogether and might be delighted if you don’t.

One thing I would check is the ability to extend your mortgage offer - as this might not be as good in a post COVID world.

Good luck.

Are your jobs safe?
If not, id pull out altogether on the grounds that your jobs arent safe.
Reducing your offer but still wanting to proceed, as a vendor, i think id just take the house off the market and wait til next year.

@plainsailing01 @TigerKingisMental it's OK to disagree. I personally think that just because you have a theory of what the market will do (as mentioned London is it's own market which rarely gets dented) and have cash in the bank etc does not give you better bargaining power. I also mentioned giving it a try anyway. 'I'd like money off please or I'll walk'...''Bye then :)'. Depends wholly on the seller situation, not the buyers.

Pull out. Housing market can’t survive this.

This is ridiculous. You clearly thought the house was worth £750k to you otherwise wouldn't have offered it. It is absolutely completely irrelevant what they bought it for but it clearly means you think you deserve to get it for less and they deserve less profit. I'd pull out completely for the vendors sake.

The point is nobody knows how much house prices will fall. These are strange times. A house that was worth £750k a month ago might be worth a lot less than that now. So most people are going to rethink.

@Gutterton maybe in your part of town. My SIL bought a place near Finchley Central in 2011 for around 8% cheaper that what it was sold for earlier in 2007. The sellers, sadly, were forced to sell because of the crisis. That saved her nearly £45k.

@Loofah01 "just because you have a theory of what the market will do" It's not my theory. It's the theory of people who are fully qualified to make these predictions as governments, banks and corporations set policies off these.

"have cash in the bank etc does not give you better bargaining power" I'm glad you're not negotiating our trade deals :D

@SunshineCake "This is ridiculous. You clearly thought the house was worth £750k to you otherwise wouldn't have offered it"

Yes, at the time of offer there wasn't a global pandemic that has literally resulted in our GDP being crushed! YOU are the one being ridiculous as you clearly don't understand how a market works.

Sounds like neither you or the sellers really have an urgent need to move so you are in kind of a stalemate - by all means reduce your offer, and if you don't get the answer you are looking for then you can pull out.

Pull out now.
You could easily lose several hundred thousand pounds of equity.

If there’s a large house price drop I suspect all homeowners who can will sit tight. So there may be cheaper properties but less choice and less quality stock.

Low interest rates will stimulate the market, which may in turn see prices rising again.

The risk is that if you pull out there may not be a decent choice of quality property until prices start rising again.

I think it is worth trying a reduced offer but be aware that if the sales collapses you could be looking for a while.

The circumstances we now find ourselves in are very different to a few weeks ago when the offer was made. It would be idiotic to not take into account the changed circumstances, but to say 'I made the offer then, so it must stand' - prices of houses do change and sometimes by huge amounts in short periods of time. That is the reality of this market.

Sellers will no doubt be anxious about buyers pulling out or reducing offers. Of course.....their asset is worth less now than a few weeks ago and it's short term value is very uncertain. They are in an unfortunate position.

No-one is committed to complete at a certain price until exchange. Any buyer would be daft not to be re-assessing the market if they haven't yet exchanged. Many will decide to pull out - entirely rational. Others will make an assessment of current house value or value in a year - of course that's a guess, and re-offer. It's totally up to the seller if they accept or refuse.

Don’t worry about the estate agent. They won’t be surprised at all about people pulling out at the moment. They want to sell houses and as a first time buyer you will always be an appealing prospect and they will always want to show you around their properties. Unless you have no option I would pull out, no one knows for sure what will happen but all the signs point to a decrease in prices. If time is on your side wait and see what actually happens to the market .

@SunshineCake

"This is ridiculous. You clearly thought the house was worth £750k to you otherwise wouldn't have offered it. It is absolutely completely irrelevant what they bought it for but it clearly means you think you deserve to get it for less and they deserve less profit. I'd pull out completely for the vendors sake."

Since when is the property market dependant upon what any buyer or seller "deserves?"

The fact that the OP felt the property was worth £750k a few months is what is now irrelevant given that we are in the midst of a global crisis that will undeniably have a massive impact on the economy. It is somewhat unfortunate for the seller, although the fact that they bought so long ago for so much less will mean that even if prices tank they will still make a profit and they likely have already paid at least a sizable portion of the mortgage off (if not all of it). If they are planning to use the funds to move onto another property, the price of this property will also be affected by the crisis so they may not even lose money.

A first time buyer is in a much more vulnerable position if they are taking out a sizable loan to pay for an asset that may soon depreciate. If this puts OP in negative equity by the time they go to remortgage they will need to pay a much higher interest rate. Even if OP is confident in their job security (which many aren't), there are other many factors that will play into whether or not this is a sensible purchase given the state of the economy and it would be foolish to plow ahead without considering all of these factors.

OP, we are in the same position and were about to complete in London before this happened. At the moment we are sitting tight and waiting to see how it plays out. No one can move until some of the restrictions are lifted anyway.

I think that the survey might be the game-changer. What’s your LTV? When is it due to report?

We were cash buyers in 2007 as the London market crashed and we moved North. The market there was behind so hadn't felt the effect yet. Our London property value fell by nearly 30% while the sellers in Yorkshire were unwilling to budge on price. We had to weigh up between renting for 6 months, moving twice and then waiting for a similar house to come on the market (it was a rare house in its price range in catchment for the school we wanted) so we bit the bullet and went ahead. It turned out that everything in the survey that needed doing, really did need doing and the prices in that area took 3 years to bounce back to the values at which we bought but it was a beautiful house which ticked all of our boxes and we loved it. Investment wise, not the best return but there was more to the decision than the investment value. We did however have equity in the house we sold so never went into negative equity which makes a difference. We were never in a position where we owed more that the house was worth. Overall, we gained a bit then lost a bit and gained some back eventually.

I agree with @Cottipus, vendors will sit tight.

Thanks for everyone's views.

@Gutterton - The LTV at the current price is just under 90%. If the mortgage valuation comes to a lower price and the sellers will not match this, we will undoubtedly pull out. Unfortunately, the mortgage valuation cannot be undertaken while the lockdown is on-going (probably a blessing in reality if it allows more time to assess the situation - but we'd like to have the negotiation on price as soon as possible as I do think that it can be unfair to do close to exchange).

Wow that’s a v tight LTV - you could be seriously locked in negative equity quite quickly.

This is an interesting read and London specific.

www.homesandproperty.co.uk/property-news/london-house-prices-sales-drop-coronavirus-a137851.html