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New city centre flats are feeling the squeeze

Deloitte’s economic advisor, Roger Bootle, is suggesting that the recent 0.25 per cent cut in interest rates is another step that will eventually take rates down to four per cent.

Lower interest rates should be a good omen for the house builders, but are they? Barely a day goes by without commentators telling us that lenders are continuing to tighten their lending criteria, volumes are falling and we are all doomed.

While it is true sales volumes continue to decline I am not convinced we are headed for the spectacular collapse widely predicted by the analysts.

However, what is undeniably on the minds of many funders is the future of the city centre apartment market.

One of the underlying problems for the house builders is the tough planning framework and the desire to drive ever higher densities on inner city brownfield sites.

Additionally, valuers are now taking a much more cautious approach to reflect the increasing debate as to the gross and nett values of property.

What do I mean by this? Quite simply, if a flat is on the market for £200,000 but has £15,000 of developer incentives via a contribution to deposit, legal fees etc, what should the correct value be?

Over recent years valuers have appeared to err on the side of gross value. However, during the past 12 months we have seen a shift in attitude and, in some instances, have witnessed valuers valuing properties up to 20 per cent below the asking price to reflect something closer to the nett value.

Clearly this has an impact on the purchaser’s ability to obtain a mortgage for the full amount and they are often faced with four simple options: get the developer to reduce the price and/or fund the shortfall by other means; or just walk away.

There is strong evidence that many people are choosing the latter option and even the professional buy-to-let investors are appearing cautious.

Therefore, I do agree that the city centre apartment market will be uncertain territory unless you have a top quality product in a top quality location.

I anticipate that it will be a tough year ahead but the seasoned campaigners’ experience will win through based on the basic principles of supply and demand for new housing.

Nigel Shilton is construction partner at Deloitte