Ajay Ahuja on The Ripple Effect and Gazumping

I have just come across a very disturbing statistic. I will tell you about it in a minute.  First I want to define the ripple effect.  This is where desireable areas first see a recovery and then over time surrounding areas pick up in price.

Take for example Joe.  Joe lives in Mayfair Central London.  He wanted to sell back in 2007 but his flat plummeted in value.  He decided to rent it out for a few years and wait.

He now thinks it will be a good time to sell as it is the primest of properties that see the recovery first.  He puts it on the market and tests it out.  He sees the Estate Agent and as all good estate agents do they over estimate the selling price to get the business.  Now Joe puts his property on the market at £500,000.

He starts to get offers within the first week.  Joe thinks he should hold out.  Joe accepts an offer in excess of £500,000 as a bidding war took place.

Joe now needs somewhere to live.  He looks what his money can buy in Zone 2.  The leafy suburb of Hampstead looks good.  He finds a 4 bed house for £1m.  No problem there.  He has £400,000 as a deposit (as a result of the sale of his flat) so he can go and get a 60% mortgage from HSBC at 1.99%.

Problem is there are several Joes.  Joe is not alone in his sale of his flat.  You haven Tom, Dick & Harry!  So a bidding war ensues and the property gets bid up from £1m to £1.1m.

The owner of the Hampstead property is very pleased and starts to look in Zone 3 and the same process happens.

Please be on the outlook for one very horrible word:


It is on its way back.  If you are trying to buy in London you will come across this hazard.

So is the ripple effect starting?  Well have a look at this shocking statistic:

The Rics survey said London was leading the way in terms of price rises, with a balance of 95% of estate agents in the capital reporting that prices were going up rather than down.

This has been taken straight from the article by the BBC.

This stat is not 60:40, 70:30 or even 80:20 in favour of house prices rising.  It is 95:5!!!!  That is pretty overwhelming would you not say?

The ripple effect has started.  Do a search on google on London property prices and see for yourself.  If you understand the ripple effect you can make a prediction about property prices in general.

The ripple effect takes around 3-4 years to spread to the North.  So you have time.  If you buy now I reckon property prices will be double in 4 years time.  That is to say if you buy a property in Hull for £40k you can expect it to be £80k in 2013.

When you consider you have bought no money down you have just made £10k per year for the next 4 years IF I am right.  If I am wrong you could make double that!  If I get it really wrong no worries as you would have had around £2,000 profit per year anyway.

So how many of these no money down properties do you want to buy?  Your answer should be LOTS!

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