Too many for sale? How can there be so many homes for sale but no buyers?

After this blog last month started a healthy debate both here and on Twitter, let’s take it to the next level. House price analysts say a glut of homes on sale and falling numbers of buyers are causing small price drops now, with perhaps more to come.

But if people buy and sell at the same time, as most surely do, why are demand and supply out of line?

The mismatch
The Royal Institution of Chartered Surveyors says in mid-2007, before the credit crunch, estate agents typically sold 45% of their stock every three months. That fell to 15% in mid-2008 before rising to 30% early this year.

But now, with more homes on sale, the sale-to-stock ratio is back down to 24%.

Exploding a myth
This increased supply suggests that in reality selling and buying do not necessarily happen simultaneously. There is a small but important time gap.

Research by Santander says 1.1m homes in Brtain were put on the market in the year to  August but did not sell, often because would-be buyers could not get a mortgage.

Some estate agents say that as a result, more sellers now wait to find a purchaser before registering as buyers themselves to avoid spending time and energy finding a dream home only to lose it because they cannot sell their old property.

“Supply and demand balance over time but there’s always a lag, never an exact balance. A year ago there were more buyers but fewer homes, so prices rose. Now it’s the reverse” says Lucian Cook, research guru at estate agent Savills.

In addition the new-build sector, which slumped in 2008 and 2009, is recovering and adds 120,000 new properties on sale per year without creating new buyers.

Dying, divorcing but not buying
A further factor is probate sales; elderly owners die and their properties are sold by relatives who already own homes – so they inherit the proceeds and do not buy. Land Registry figures show that in 2007 some 7% of deals were probate sales. But now, with home sales halved but death rates static, they account for 15% of the market.

There are also 120,000 divorces a year. Analysis by Savills shows that in a third of cases the couple sell their home and, at first, each person rents before buying later.

In the past these ‘sell-but-not-buy’ figures have been balanced or outweighed by first time buyers, who purchase with nothing to sell. But tougher mortgage conditions and average deposits rising to £35,000 mean FTB numbers are 50% of the level in 2007.

Let’s see if that starts a debate.

Q. My partner and I are looking to buy a repossessed property at auction as they are more affordable in the area we live in. My query is how do we obtain a mortgage on an auction property?

A. Buying property at auction is different to a conventional sale as the deal is binding at the fall of the hammer, where you are expected to hand over a 10% deposit. In a traditional deal, you are free to withdraw even if you have made an offer which has previously been accepted. If you fail to complete on an auction property with a 28 day period, you will lose your deposit.

I suggest that you contact several lenders well in advance of the auction date and ensure that you have satisfied their lending criteria and that they are willing to loan an appropriate sum of money “in principle.” Even if you do this, the offer will always be subject to a satisfactory survey by the lender so be prepared to have your intended auction property surveyed at your expense in advance of auction date. The risk with this is that even if you are able to borrow and the lender lend, you could still lose the property on auction day itself which would also mean you forfeit the cost of the lender’s valuation survey. Subject to the terms and conditions of the lender, you could also be liable for a hefty mortgage arrangement fee so check this aspect carefully with any potential lender. Good luck!

If you need further advice on obtaining a mortgage, take a look at our Mortgages & Finance centre on Primelocation.com.

Got a property question? Leave it in a comment and Barry will give you an answer.