Why big houses are seeing big price falls

Properties with five bedrooms or more have seen the biggest falls in asking prices over the past year.

It’s been an odd couple of months for the housing market. One month the house price indices report house prices rise, the next they fall. Indeed some months, depending on which index you take note of, they have done both.

In my view, such indices don’t come close to presenting the full picture - particularly when it comes to variances in house prices between the different types of property.

Luckily, new research has just come out that attempts to show just how much size matters when it comes to property asking prices.

Bigger homes see biggest falls!

According to the research by property search engine Globrix, homes with five bedrooms or more which have suffered the most, pricewise, over the past 12 months, with the average asking price dropping by an average 2.8%.

That’s the equivalent of £15,983 falling off the value of such homes, with average prices falling from £561,130 last October to their current level of £545,147.

This is even more surprising given that such homes actually saw asking prices rise by 1.3% last month!

Smallest properties are doing better

In contrast, the very smallest properties – studios and one-bedroom flats – have performed far better over the past year, with asking price rises of 1.5%.

However, they are pretty much alone in this regard, with only marginally larger properties, such as two-bedroom flats or houses, seeing falls of 0.4% or no price movement at all.

Let’s take a look at Globrix’s findings for the various types of properties:

As you can see, the results vary pretty wildly. Clearly demand for larger flats has fallen off a cliff.

Why big homes are suffering

So why is it that the larger properties, both for houses and flats, have suffered so badly over the past year.

Globrix highlights that homes with five-bedrooms or more are pretty rare compared to say, three-bedroom properties, and as a result seemingly minor events can have a big impact on asking prices.

And that’s just what has happened, with Globrix pointing the finger at many high-net worth individuals – the type of people that will buy such a large home in most cases – looking to leave the UK to avoid higher income tax levels. What’s more, Globrix reckons that with Sterling on the rise, such buyers may start to look to buy overseas, further denting the price of larger properties.

Why smaller properties have done ok

At the other end of the scale, the smallest properties – the traditional domain of the first-time buyer – have done pretty well. There are a number of reasons that you could highlight for this improved performance. For starters, the number of mortgages available to first-time buyers has grown pretty significantly this year, up by almost a quarter since January.

And the deals themselves have improved, with lower rates at higher loan-to-values making them more accessible to those potential buyers desperate to take their first step onto the property ladder. There's a lot of pent-up demand in this market where prices have dropped to affordable levels.

Add to that the changing demographic in the UK of increasing numbers of people wanting to live alone, and you can see a simple explanation for such rising asking prices.

Asking too much

I’ve no doubt that changing demand for large and small properties have played a pretty significant part in the changes to asking prices. However, there is another factor to take into account – vendors have simply become more realistic about how much a buyer is likely to pay for the property.

Mortgages may be increasingly competitively priced, but actually getting hold of that funding remains mightily tough – in both August and September gross mortgage lending levels have been at ten-year lows for those months. And with continuing uncertainty over job security thanks to Government cuts and ongoing economic difficulty, demand across the board has also fallen – according to the Royal Institution of Chartered Surveyors, new buyer enquiries has fallen for five straight months.

As a number of estate agents make clear in the most recent National Association of Estate Agents market report, if you don’t market your property at a reasonable asking price, you simply won’t sell.

Asking prices will have to head southwards

And chances are asking prices still need to head further down in the coming months. Property website Zoopla.co.uk confirmed last week that more than a third (36.4%) of sellers using the site have cut their asking price on at least one occasion since August.

Indeed, the average vendor has knocked 6.1% off their original asking price – the equivalent of nearly £16,000!

In Zoopla’s own words: "For the past few months, asking prices have been somewhat out of kilter with what buyers are prepared or can afford to pay, but sellers are becoming increasingly realistic.”

Getting the asking price right

Clearly getting the asking price right is pretty important if you want to sell your home. Here are some simple things you should do to ensure you don’t set a stupid asking price that will leave you unable to shift the property.

Speak to lots of estate agents

The worst thing you can do when selling your home is accept the valuation of the first estate agent you speak to. You should arrange valuations (which are free) from three different agents, at the very least.  The agents will not only give you an idea of how much your home should be listed for, but will also be able to point out what things need to be improved for the property to be worth more money.

Go online for a valuation

My dad (who is an estate agent) won’t thank me for this, but your traditional high street estate agent is not your only option – why not head online? Hometrack, for example, offers a detailed breakdown of exactly why they value your property at a certain amount. Ok, so you have to pay £20 for the report, but I reckon it’s worth it. Have a look at their website for full details on what you can expect from the report.

Do your own research

Of course, you can do your own research on what price you can expect to charge for your property without paying a penny by using sites like Zoopla.co.uk, Rightmove.co.uk, findaproperty.com et al. These will all have information on the recent prices attained by properties in your area. Nethouseprices.com is also worth a nosy - it lists all the recent 'sold' prices in your postcode from the Land Registry for free.

More: Earn 8% on your savings! | Fix for 5 years at under 4%

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.