With every expert adding their two cents on the movement of house prices in 2008, I’ve come to the realisation that the only guarantee we have is that no one seems to be certain - if I have sit and listen to another DIY expert quote “well, it’s obvious that people dont realise property moves in seven year cycles” I’ll scream! (and technically that ‘fact’ is a myth and not entirely correct).

“The Wisdom of Crowds ..” - a book published in 2004 by James Surowiecki, explains how the aggregate decision made by a group is usually better than the decision made by any one member of that group.

“The opening anecdote relates Francis Galton’s surprise that the crowd at a county fair accurately guessed the weight of an ox when their individual guesses were averaged (the average was closer to the ox’s true butchered weight than the estimates of most crowd members, and also closer than any of the separate estimates made by cattle experts)” (extract taken from http://en.wikipedia.org/wiki/The_Wisdom_of_Crowds)

Moving away from livestock and back to house prices, this holds some wisdom. The following table shows the 2008 predictions of the “experts”: (this data is collated in full at http://www.housepricecrash.co.uk)

By the same theory, the aggregate prediction is a drop of approx -3% for the year - seems to be contrary to the severe doom and gloom forecast by the media.

But then there’s another theory - well not so much a theory but a logic, that if the british public are constantly told prices are set to fall, this will increase number who postpone on buying for (sometimes) misplaced fear of losing cash - end result = less sales = lower prices … it seems our fate is somewhat sealed?

Next week we’ll be commencing our first BMV direct mail split test consisting of a small sample of leads across the country. The idea is to refine and establish which methods of direct mail generate the most

a) Calls

b) Qualified Deals

Each group will contain 200 leads split over various postcodes, targeted through the following methods:

1) Self Mailer
Spec: A5, 280gsm Double Sided Full Colour Self Mailer (stamp and address on reverse, message on the front with a clear telephone number & URL for further info)

Message: Stop Repossession Now / Quick Cash Purchase Available

Theory: Lack of envelope means message is seen instantly - overcomes ‘mail opening procrastination’ common when respondents are in debt

2) Personal Letter in C5 Window Envelope

Spec: A4, 100gsm Double Sided Full Colour Letter, in a C5 Windowed Envelope.

Message: Stop Repossession Now / Quick Cash Purchase Available

Theory: Self mailer may be disregarded as junk mail / not passed to homeowner. Envelope will possibly ensure safe passage.

3) Personal Letter in C5 Window Envelope (Soft Sell)

Spec: A4, 100gsm Double Sided Full Colour Letter, in a C5 Windowed Envelope.

Message: Introduce ourselves as a property buying company looking for properties in this area to buy for cash. No mention of repossessions.

Theory: Respondents approaching repossession are often sceptical at this stage of any who claims to have an ‘easy solution’. Soft Sell should generate more call volume out of general interest

Once we get the results (we’ll allow a window of 21 days), we’ll post them here, along with samples of each item used.

For anyone that missed this show the link to watch it on ITVs website is

http://www.itv.com/Watchnow/CatchUp/default.html

From watching this it seems a little like the four horses of the apocalypse have descended on the housing market (or so the public will now think).

Just like an economic slump its often down to scaremongering to cause further problems e.g. announce that there’s going to be a recession, everyone stops spending in preparation - > no one spending = economy not making money = recesssion.

With further news, or shows of a similar nature, could this severely affect people buying, and hence affect the prices of houses being sold as more people become desperate to pay their ever increasing mortgage?

Without leads, she has no business, so her day to day activity was a frantic mix of random direct marketing activity. During our first chat, she gave the famous and now somewhat clichéd BMV marketing quote “we’ve tried leafleting and stuff but it didn’t really seem to work” At this point, her faith in basic grass roots marketing had clearly been lost, but this was merely down to not understanding the principles behind the golden number.

In below the line marketing (direct marketing using low profile media), there is always the principle of a golden number – i.e. you perform X actions Y times you get Z results. The Holy Grail is knowing your golden number for any particular marketing activity.

For example, if you print and distribute 10,000 leaflets for £700, you may receive 25 calls (new enquiries) in a week that came directly from seeing the leaflet. If you have an average conversion of 25 calls to 1 deal (removing deals that do not have enough equity, unrealistic asking prices etc) then your response rate is 0.25 % (25/10000) and your conversion rate is 0.01%.

If your average net profit after duties / fees / taxes per deal in that area is £25,000 then you can assume that this advert, generating 25 calls will make you £25,000

This simplistic example shows how it would work in an ideal world…but I’m sure we all know that this very rarely happens. Where disillusion begins to set in is if for example, you distribute 5000 leaflets rather than ten, or as it most often happens, print 10K but only distribute the first 5,000. Using the figures above, this would generate 12 calls but none of them ‘deal-worthy’ resulting in disappointment and often the disposal of the remaining 5,000 flyers.

There is no solution to getting to your golden number, but the two rules of ample time and a large enough sample will always help. Remember

• If leaflet dropping, research your sample area well. Avoid areas that have an abundance of student occupied or multi tenanted properties or large numbers of properties under £150K
• If using direct mail to a repossession list, use a sample large enough to get a realistic result – 50 - 100 is a good amount to start with to estimate a response.
• Don’t give up immediately - try to monitor your response over a period of at least 8 weeks.

My attitude was always “I’ll become concerned when we own a company about to float on the stock exchange. For now it’s just not relevant.”This changed, the day I found out that knowing what was about to happen would shape the amount profit we would generate in any of our companies - especially in property.

You’ve probably heard the recent rantings of the British press with regards to the “Sub Prime Crisis”. Everyone seems to have a slightly different take on the causes and effects, but for any one that needs a brief overview

1) The US debt market primarily consists of loans, mortgages and credit cards. Some of this money is leant to people with less than perfect credit or with ‘questionable means’ of paying this money back. In short, this is the sub prime market.

2) Following problems in the US economy, much of this lending began to default. This would have only affected US lenders, however this became widespread due to the packaging and overseas sale of debt. As many of these debts defaulted, financial institutions ran into problems, and lending between these institutions dropped dramatically.

3) With less money available, banks and lenders reduced lending significantly, with the greatest shake up at the bottom - the subprime sector.

What does this mean for the BMV sector?

This news should greatly affect your strategy over the coming year. In my opinion:

• First time buyers with poor credit will find it harder to qualify for a mortgage - hence increased rental demand in this sector
• FTBs with average credit will fall down the ‘mortgage food chain’ slightly as lending becomes scarcer. The highly favourable rates of past will disappear and mortgages with high repayments will deter more people from buying at this period - hence increased rental demand in this sector
• Even with the recent interest rate cut, this saving was mostly not passed on to the mortgage consumer. Rising interest rates equal rising repossession rates (and trust us - they are rising) which means increased supply of property. Coupled with less demand from the above two factors, and prices are indeed likely to fall as predicted. With so many first time investors having little equity in their property from over valued no money down deals, the effect will be increased sales / repossessions in this sector.
• Rising mortgage costs have forced many mid sized buy to let investors to dispose of at least some of their portfolio through offering their tenants a no money down option to buy. This will inevitably reduce the number of buy to let properties available (but in fairness, will reduce the number of buy to let tenants accordingly as they become homeowners)

All the signs point to an increase in demand for affordable but to let. Naturally, the only way a BTL will be affordable is if the purchase is made at a level which is significantly below current “market value” - but that’s the reason why we’re here.

So, if your strategy involves flipping a property for a quick sale, 2008 may be the time to reconsider. Attempting to sell property through such a troubled period is unlikely to generate the profit you would hope for. Providing it’s feasible to do so, hang on to your property as a letting for at least three years, or until the UK recovers from this impending crisis.