Have FTB's had the needed leg up?

In a recent Rightmove Consumer Confidence Survey, 61% of those in rented accommodation stated that they would like to buy but could not currently afford to do so. With today’s budget announcement of a further stamp duty holiday, this time available to only FTB’s but for properties priced up to £250k, will this be the boost required to bring a significant number of FTB’s back to the market?

Three key factors in FTB’s ability to get on the housing ladder are Affordability, Availability of Mortgages and the level assistance available to help with the purchase.

 Let’s consider these three elements to see if the time is right:-

 Affordability – Mortgage Payments V’s Earnings

 It doesn’t take an expert to tell you that house price are pretty low at the moment with the average price paid by an FTB in 2009 being 10% lower than in 2008, at £133,794. As a result the average mortgage for a new FTB in 2009 was £104,000 which was 14% lower than in 2008 (£122,000).

 So with prices being so low that suggests a good time to jump onto the ladder, reflected in mortgage payments 27% lower than the average monthly mortgage payment in 2008.

If you assume a 25-year repayment mortgage at the industry average tracker variable interest rate for a new borrower this equates to a mortgage payment of £562 versus £768. That’s over £200 per month to go towards that flat screen TV to go in the new pad.

One measure of affordability shows that the proportion of earnings required to pay a mortgage has halved in the last two years, a result of the combination of lower house prices and interest rate reductions.

The tightening in lending criteria over the past two years is, however, making it very difficult for some to take advantage of lower property prices and mortgage rates. So what mortgage deals are available?

Mortgage deals availability

The tightening in lending criteria since the summer of 2007 has meant that some potential FTBs have been unable to enter the market despite the marked improvement in affordability. The good news though is that there are significant signs that lending criteria has stopped tightening

The number of live mortgage products rose by 33% from a low of 1209 in April 2009 to 1610 in December and with interest rates set to remain low for some time, most industry experts predicting them to stay at the current rate until the end of 2010, this rise in mortgage products looks set to continue.

There has been a modest increase in the availability of mortgage credit recently, including signs of products with 90 and even 95% LTV  emerging, but lenders are targeting the more credit-worthy applicants as they  seek a greater share of the good margins currently available in the market to rebuild their balance sheets and profitability.

Assistance in buying

Recent research has found that increasing numbers of FTBs have been receiving financial assistance to raise funds for a deposit with the latest estimates indicating that around 80% of FTBs are getting such help.

The CML estimates that the average age of those FTBs who have not had financial assistance has risen sharply from around 33 in late 2007 to 36 now, showing that even FTB’s well into their 30’s are seeking assistance from family.

The national average deposit required for a FTB in 2009 was £29,439 (22% of asking price), so the stamp duty saving of up to £2,500 is hardly going to make much of a dent on the savings required to get moving.  

Other assistance comes in the form of incentives from new home builders and also affordable housing schemes allowing aspiring home-owners to purchase a share in a house while renting the rest – giving them an opportunity to get on the housing ladder earlier and buy the remainder of their home as and when their finances allow.

 

One example of this is the Government’s Homebuy assisted purchase scheme for new-build properties, but recent research by Rightmove has uncovered a lack of awareness in the scheme among those whom it is intended to help. They found that only 22% of the 3,463 potential first-time buyers surveyed stated they were aware of the scheme, with another 34% saying they had heard the name but were unaware of the details. 44% had never heard of it and whilst these scheme’s aren’t going to help estate agents (unless you have retained developer relationships) they give an indication of the appetite of FTB’s to actively search out routes to get on the ladder.

In summary, whilst affordability is good, there are too many factors weighing against FTB’s for the latest stamp duty holiday to have a significant effect and availability of credit at favorable terms remains the primary issue. Confidence would seem to remain low and for the short term at least, it seems that the bank of mum and dad will have to remain firmly open for those few that decide to take advantage of the low house prices and interest rates.

 

Will high street letting agents be put out of business?

Ask a travel agent if he needs a high street branch to run his business these days and he will probably tell you that he can’t talk because he’s got burgers to flip.  

Over the last 5 years the travel agency business has taken a significant hit on the high street, with the majority of high street businesses not being able to compete with national online services which feed on the view that online is quicker, cheaper and you don’t need to worry about where to park your car.

Many hold the view that a similar fate is going to hit high street letting agents, whereas agents with high street offices claim that landlords still prefer to use an agent with an established high street presence because of personal service, an improved profile and the tangible reassurance that a physical high street branch can provide.

One thing is for sure, the benefits of using a high street agency are slowly eroding and the internet is offering a range of alternative models that have different benefits. There are some very good online agents starting up in business and offering what seems to the general public like a fresh approach.

Letting a property is in most cases a decision made with margins in mind and any fees paid to a third party eat into profit and so need to deliver demonstrable benefit. This is reflected by a recent survey by Specialist lender CHL Mortgages showing that the majority of residential landlords manage their portfolio’s themselves, with only 34% who rely on the services of a Letting agent to manage their properties.

This 34%, that are probably looking to save time and reduce hassle, have a growing choice of options for marketing and managing their property. These range from the traditional high street agent offering a complete ‘hands on’ experience including face to face valuation, viewings, inspections, inventories and so on, through to the online agencies offering little more than a marketing route for owners to sell privately with the added benefit of access to estate agent only portals such as Rightmove. It is important to note though that many high street agents offer marketing only options and equally online agents commonly will provide ‘hands on’.

So what will be the deciding factor as to whether these landlords decide to take this business online?

My view is that rather than landlords deciding to take their service away from the high street they will just continue to go with good service at the best possible price. Gradually more and more letting agents will acknowledge that they can still offer a personal, high standard of service whilst significantly reducing their overheads and so we will naturally see a shift as more agents move away from expensive high street locations.

Letting agencies with associated sales operations (roughly 70% of estate agents also have a lettings business) may be the last to leave, closing their costly offices and switching to central locations, but they will do so eventually and with it they are likely to make their traditional service available on a more ‘a la carte’ basis.

So rather than 'traditional' estate agents being cut out, they will simply change their model to take advantage of changing habits and improved technology, a change which has already begun.

If agents don’t change, which inevitably some will fail to do, they may find themselves asking “do you want fries with that”.

Do you like me?

I had a conversation last week about doing business with people we like and whilst it seems a bit of an obvious one, we all prefer to do business with people we like which means we need to also be liked ourselves.

I’ve always had the view that potential clients/partnerships need to tick a number of boxes in order to be worth doing business with and the ‘likability factor’ is one of those boxes. If you don’t like the people selling a product or service, the deal has to be extremely compelling for it to be worth doing and there are very few of these cases.

Most of us decide if we like someone pretty quickly and first impressions last and make a very deep impression. We have the process we refer to as ‘ice breaking’ where we might talk about the weather or other mundane subjects and there is also an element of storytelling that goes on – we ALL love to hear stories. This ice breaking process is effectively us trying to build some rapport one another and seeing if we like one another.

So how can we use our online marketing to facilitate the ice breaking, first impression building through letting people have a glimpse of our personalities before we meet?

I was with a friend of mine last week who when he first meets clients, is often told that they feel as if they already know him. This is because he films product videos which include him demonstrating and talking through the product and they are posted on his web site and viewed by potential clients. By watching these short videos people ‘get to know him’ and this definitely helps him in the sales process because they build trust in him too.

Prior to meeting people I can now find out much more about them as a person and vice versa, so we need to think about how we can give clients an insight into our business and our personality before we meet them.

If people like you they are more likely to ask you out to value their home, more likely to list with you, more likely to buy additional services from you.

How are you using video, social media and other tools to create ways of giving potential customers an insight into your business and accelerate the relationship and trust building?

Tesco (Spicer Haart) are back with £999 Agency Offering

Apologies for once again writing about a challenger to the traditional estate agency service, but they're coming out thick and fast at the moment and I think there are important lessons for us all to learn from these new approaches.

After months of speculation as to how they would do it, Spicer Haart have sort of unveiled their new estate agency service using the Tesco brand. iSold.com offers a fixed price estate agency service for £999 and is being launched in Bristol this weekend. A curious decision to launch it under a new brand name with the Tesco name merely being used in association, but probably more to do with branding rights than marketing strategy. However, unlike when Tesco launched Tesco Property Market, I think it is probably the right call to launch it in one area where marketing and PR efforts can be focused and delivery can be managed rather than nationally where they end up with a couple of instructions here and there. The Foxtons approach to new offices was always to divide and conquer one town at a time and I would expect iSold to adopt a similar strategy. The price is a likely to be a crowd puller and their tech is also going to be quite slick by the looks of things. I registered on the site this morning for updates and within moments, I received my fully personalised update...

EA Today had comments from some this morning mocking Spicer Haart for undermining their own business model. I don't think any of their brands operate in Bristol itself anyway, but on the basis that iSold will go national at some point, is there any merit in this criticism? Who better to set up an Estate Agency business that can operate more efficiently at lower margins than the established players in the industry than one of it's biggest players?

If you are able to run a very tight ship on the estate agency front; low office costs and massive discounts from suppliers; newspaper advertising, fleet vehicles not to mention portal listings, then you can operate on much tighter margins than the good, local agent with higher relative overheads. What's more, SpicerHaart have profitable operations in many areas relating to the core business; Mortgages, Conveyancing, Surveyors and can make plenty of money on referral services without worrying too much about the profitability of the estate agency operation on its own.

Under the Haart brand, they opened a 'super office' last year in Milton Keynes which very much adopted the Tesco model of an out of town location with plenty of parking serving a large catchment area. Open longer hours, it's more convenient for the consumer and cheaper than running several high street locations that nobody visits through fear of being ticketed or towed. iSold appears at first glance to be further refinement of this concept; eliminating unnecessary cost without compromising the customer experience.

They also seem to be taking another leaf out of the Tesco business manual by launching with "Essential", "Premium" and "Premium Plus" levels of service. Echoes of Tesco's own structure of offering a Value range, Normal (this one is just called Tesco I think) and Finest. 

Many other industries adopt similar models: Airlines have Economy, Business Class and First Class. Car manufacturers have S, SE, GTi and various other iterations on the same theme. Depending on what you are buying and the importance that you place on it, you choose a level of service, but most importantly, your choice is between different levels of service from the same company. Traditionally, to choose between estate agency services has meant choosing between agents. The trick is to ensure that the most popular tier (usually the middle one) is also the most profitable. Does the difference in service and legroom for Business Class travel really justify the extra expense?

I also wonder if those that enquire to sell through iSold would be offered an upgraded service provided by Haart or Spicer McColl at some point in the process once they go national? Maybe after they've been on the market a few weeks? Maybe straight away? Different levels of service can just as easily be offered by one company using different core brands instead of sub-brands. This is the tactic which has brought success to the Fine & Country brand in the last few years, giving middle market operators access to those plum instructions at the top end that their core brand never had any presence with.

I am sure that if you can afford it, there is only one way to fly; First Class, but not all of us can and in these times of enforced austerity we may choose to compromise. There is a world of difference between Value and Cheap though and I cannot see Tesco allowing their name to be associated with anything that provides poor customer service. I would expect they have planned this carefully to ensure they can provide a very decent basic service for £999. In Bristol at least, continuing to be a reassuringly expensive agent just got a little bit trickier.