August Market Report

If people ask me how is the market I would call it “brittle”, it’s growing steadily and there are significantly more deals being done by us than 12 months ago but all that being said you get the feeling that one hard knock could send things back to where they were. Probably like you, I pore over the papers looking for encouraging signs of economic recovery, but the problem is that you read all these contradictory reports. My pet theory is that there are so many hedge funds out there betting on falls in the market who are putting out bad news as a way to fuel the unease and cause the market to fall, that the whole thing becomes a self fulfilling prophesy.


I certainly hope that George Osborne has got it right and isn’t going to take all the air out of the balloon with his Budget cuts in October!

The banks are behaving a bit better although the people on their credit committees are still in charge and are being very careful with the deals they approve. I heard a story the other day that one member of a bank’s credit committee had told a business broker that he didn’t trust his commercial managers to lend sensibly, which was a pretty startling revelation.

The latest news is that house prices have now been falling for three months in a row and there are going to be significant further falls in the housing market. Frankly I don’t see that. Have you heard of dramatically cut house prices in your area and people snapping up bargains? No, nor have I. What I have seen is over-priced houses being sold at what were always the right prices for those properties in the first place. In other words what we are seeing is the housing market performing sensibly with houses being sold for what they are worth. Interest rates are at an all time low and many highly geared owners in negative equity have been able to hold onto their houses so long as they are still employed. In fact house owners with a small mortgage and a steady income are in pretty good shape right now with their mortgage interest payments accounting for only a small percentage of their household income. Property prices are now back at the same levels they were in 2007 which means that they have already fallen some 20-30% in real terms. But, by the same token, I don't see property prices rising either and that's because banks will stay cautious with their lending and property in the UK is expensive and still unaffordable to first time buyers. In the current market houses are and will take longer to shift because buyers cannot borrow as much as they had initially hoped, so if you have a vendor who won’t lower his price and a purchaser who cannot raise his offer, you have a property that will stick on the market. The only way to break that deadlock is for vendors to accept that they are unlikely to get the price they want.

This is also true in the business sales market although there are one or two crucial differences: (1) house buyers can wait until they get what they want while business buyers need to buy because the longer they wait the more they eat into their capital/savings which reduces their buying power; and (2) business buyers are less emotional than house buyers, fundamentally they are buying an income stream so if they can’t buy one business at the right price, they will move onto the next one.

We continue to hear stories of vendors being told by agents that their properties are worth absurd prices. Frankly I am always amazed that these vendors can be taken in by such nonsense when surely every bone in their bodies must be screaming that it must be too good to be true. Business buyers are sensible people and they very seldom over-pay; there are too many checks and balances in place nowadays for that to happen, from their accountants and bank managers giving them advice through to their having looked at 5-10 other similar businesses before they see yours; and then there is the bank valuation - almost every business purchase is subject to one.

Traditionally July and August are quiet months when many buyers are away, however we noticed that activity over the last two months went in waves with periods of pandemonium followed by days of calm. I think this was a reflection of people spreading their holidays across the two months, rather than taking them in one block.

If you would like to discuss any aspect of the sale of your business with us then please do not hesitate to contact us on 0800 707 6370.
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