Recession UK: The £238,000 Unit That Lost 70% of its Value in Two Years

23 June 08

Once seen as a sure-fire way of making a small fortune, newly-built units have become the worst victims of the UK housing market meltdown. Prices of new properties in city centres have collapsed, with many sold at auction for a fraction of their value only two years ago. In one case, a three-bedroom unit in Leeds was bought for £237,999 in March 2006 but has just sold for £71,000 – a fall of £166,999, which is 70.17%.

In another, a one-bedroom unit in Newcastle upon Tyne was bought for £142,800 in May 2006. It sold at auction this month for £78,000 – just over half the original price. There are hundreds of examples of similar disasters.

Many of the owners are investors. The worst hit are those who have not saved any money into a pension but planned for their unit to be their retirement nest egg. In many cases, the units have been repossessed after the owners failed to meet rising mortgage costs.

People believed all the hype and the marketing that they would be able to rent out their unit for £1,200 a month to a professional couple. They could only actually get £800 a month renting it out to students who have trashed it.

Units sold at auction between January 2005 and February 2008 show that the value of the average investor unit has plunged by 26%. Only 20 of the 535 units sold at auction (which are typically ‘distressed sales’ such as repossessions) were sold for a profit. Since then, prices have continued falling and the availability and cost of mortgages, particularly investor mortgages, has got much worse. One of the problems is the enormous number of units which have been built in recent years. Units made up around 50% of new property ‘starts’ last year. A decade ago, they accounted for less than 17%.

This week, a Bank of England report into conditions for builders found they are struggling to find buyers at any price. It warned the number of people cancelling plans to buy a unit is ‘at record levels’. Inside Track, a company which promised to ‘educate’ people about investing in property, has collapsed into administration.

More than 172,000 homes were put on the market from mid-May to mid-June, pushing the total number on sale above one million for the first time since records began. The landmark is a sign of the panic among homeowners desperate to sell their properties before prices fall even further. Others are selling in order to grab a bargain by getting a newly-built home for a massive discount.

The research also shows real estate agents have record numbers of unsold homes on their books. On average, each office has 75 homes for sale. Estimates are that there are now about 15 properties for sale for every buyer. The average asking price is now £239,564.

Source: Daily Mail 23rd June, 2008