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‘Ghost gazumping’ haunts London housing market

Rows of houses stand on Egerton Crescent in the Kensington and Chelsea borough of London, United Kingdom.
Chris Ratcliffe | Bloomberg | Getty Images
Rows of houses stand on Egerton Crescent in the Kensington and Chelsea borough of London, United Kingdom.

Property buyers in London are increasingly being asked to pay tens of thousands of pounds extra at the last minute, in a new, more aggressive form of "gazumping" that does not feature a rival bidder.

In a sign of the frenzied state of the capital's housing market, estate agents say many sellers are raising the price of their homes days before the exchange of contracts.

Unlike the gazumping of the 1980s, when rival buyers stepped in at the last minute with a higher offer, this trend involves sellers increasing the price because they can – because there is so much demand for a small number of properties.

(Read more: Bovis ups dividend as UK housing market booms)

"It's now very common and a depressing factor of a market with low supply and monster demand," said Peter Rollings, chief executive of Marsh & Parsons estate agents.

This "ghost gazumping" typically happens several weeks after an initial offer is accepted, as rival estate agents door-knock sellers and tell them they have agreed to too low a price.

Dominic Agace, chief executive of Winkworth, said this was a "new phenomenon" that had not been seen before, even during the property bubbles of the 1980s and the mid-2000s. "It's something that has not been around before. We obviously have had gazumping in the past but this is not something I have ever seen until now."

Mr Agace said the trend was increasingly common in London suburbs including Dulwich, Twickenham, Shepherd's Bush and Kensal Rise.

(Read more: No UK housing bubble, just a London one: EY)

"We've just seen it happen with one house, where the deal was struck at £1m but the sellers have gone back and asked for £1.1m. The buyers are paying the higher amount," he said.

Andrew Ince, a 45-year-old driver, was asked to pay an extra £20,000 just before exchange of contracts on a house in Chigwell, east London. "I thought it was completely unethical," he said. "I flipped and said 'no way'."

But many other buyers are paying the extra sums, in some cases in six figures, to avoid having to find a new house as prices keep rising.

The phenomenon illustrates how much the housing market has improved since the credit crunch, when prices fell sharply in some boroughs of London.

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Prices in the capital were 14.9 per cent higher year-on-year in the fourth quarter of 2013.

Mark Hayward, chief executive of the National Association of Estate Agents, said the trend was a symptom of a huge demand for property but not enough homes on the market.

"Vendors are very good at looking at good news, but they don't read bad news. So they will see statistics showing house prices are up 10 per cent in a year and they think they rose by that amount in February alone," he said. "They think, therefore, their house must suddenly be worth 10 per cent more."

Mr Hayward said "unscrupulous" agents were approaching homeowners whose properties had been under offer for more than eight weeks and urging them to leave their current agent and put their house back on the market at a higher price.

(Read more: Bubble alert? UK house prices rise to 6-year record)

"In the 1980s and 2000s you had gazumping, where it was someone coming in and they could offer more money," he said. "What now seems to be happening is where the price is going up without any rival bid at all. It's not necessarily greed; if people think they can get more, they will try."

Mr Hayward said the trend was limited to London and the southeast. "At some point interest rates are going to go up and it will be a wake-up call," he said. "But when there are so few houses being built and so few people moving house this is what we are seeing."

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