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Last Updated: Friday, 3 December 2004, 13:06 GMT
How to beat a falling housing market
By Julian Knight
BBC News personal finance reporter

Woman looking into estate agent's window
Would-be home buyers are getting more choosy

Halifax, the UK's biggest mortgage lender, has predicted that house prices will fall by 2% next year. However, the bank says it expects price falls in some areas, particularly the Southeast, to be larger. BBC News asked the experts what tactics you should adopt in a falling property market.

If you are a seller

"Sellers are having to work really hard to attract buyers at present," says Richard Donnell, spokesman for estate agent FPDSavills.

"During the boom years a house only had to have half the things right with it in order to sell, now everything has to be right or it doesn't shift."

There are still plenty of buyers, they are just demanding quality and value for money
Richard Donnell, FPDSavills

For sellers in a falling market, the advice from Mr Donnell is simple: be realistic over price.

"There are a lot of aspirational sellers out there, who still hark back to the hot market. They need to ask their estate agent to give them a realistic valuation and ask them how they can improve their chances of a sale."

Smartening up the property can help it stand out from the crowd, Mr Donnell adds.

Try creating the impression that any buyer could move in and live happily without having to spend a penny redecorating or ripping out gaudy or dilapidated kitchens and bathroom.

"There are still plenty of buyers, they are just demanding quality and value for money."

Ultimately, Mr Donnell adds that it may be best to stay where you are.

"Last year, only 40% of people moving home said that they actually had to move. If you are happy somewhere you might consider staying put; a home after all is somewhere to live."

If you are in danger of negative equity

Many buyers stretched themselves to clamber onto the property ladder, taking on mortgages worth many times their salary.

If one asset - your house - is falling in value you should be looking to boost the value of your other assets such as savings accounts and shares
Julian Crooks, financial expert

With five interest rate rises in a year, homebuyers are beginning to feel the pinch.

If Halifax's prediction of house price falls in 2005 come true then in some parts of the UK recent homebuyers may find that their pile is worth less than what they paid for it.

The dreaded negative equity could be coming back, having dashed the dreams of hundreds of thousands of homeowners in the early 1990s.

"There does seem to be a danger of negative equity so people should be preparing their finances to cope," says Julian Crooks, an independent financial adviser.

"If one asset - your house - is falling in value you should be looking to boost the value of your other assets such as savings accounts and shares.

"Another smart move could be to overpay on your mortgage so as to reduce your debt. In effect, pay your way out of negative equity.

Mr Crooks also advises homeowners to look into the possibility of switching mortgage.

Evidence piles up for UK housing market slow down

"If you are on your lender's standard variable rate mortgage this could be a good time to switch. By doing so you could slash your mortgage by hundreds of pounds a month.

"However, check out if switching could mean a redemption penalty."

According to Mr Crooks, homeowners would be wise to protect themselves against personal setbacks which can force negative equity to become a real debt drama.

"Negative equity only starts to really hit home if you are forced to sell - say following redundancy or a long period of illness.

"Therefore protecting yourself through insurance and building up a savings stock pile could be a sensible step."

If you are a buy-to-let investor

In recent years, Britons have been ploughing cash into buy-to-let property.

The advice to buy-to-let investors is simple: hang on in there
Lee Grandin, Landlord Mortgages
People contrasted rising property prices with anaemic stock market performance and the erosion of company pension provision, and came to the conclusion that their money was better off in bricks and mortar.

In fact, in some areas of the country, the buy-to-let mania has been so strong that some property-watchers say it has provided almost the only impetus to house-price inflation.

But now the life seems to drain away from the market.

"In some part of the country the housing market has been flooded by buy-to-let investors," says Lee Grandin, managing director of Landlord Mortgages.

"The problem is that there are not enough tenants to go around and some investors are going to have endure long periods where their property is empty and not earning them any cash.

"But the long-term trend is positive. There are too few homes to go around, particularly in the Southeast.

"The advice to buy-to-let investors is simple: hang on in there."

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

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