Despite the gloomy market, investors still have something to cheer about
Look beyond the doom-mongering, and there is still money to be made in property, says Alex Delmar-Morgan
Property is a subject close to the hearts of the British people, and many home-owners have been chuffed over the past few years to see the prices of their properties increasing at massive rates.
Surely, though, even the most satisfied homeowner must be getting nervous about the state of the market at the moment.
But amid the media’s wailing and gnashing of teeth and gloomy predictions by economists, there are positives, especially if you have a few bob squirreled away.
Buy-to-Let
For a start, the buy-to-let market is holding up. Specialist buy-to-let lender Paragon published a report last week saying that rental yields have risen to their highest level since the start of 2006, hitting 6.4 per cent.
Landlords’ rental incomes have risen steadily over the past year, the report claimed, jumping nearly 12 per cent and six per cent since January. Cash poor first time buyers, who are unable to get a mortgage in the current market and therefore can’t get on the property ladder, are being forced into renting. This is good news for the buy-to-let investors who are able to increase rents as demand grows. John Heron, managing director of Paragon said: “Strong tenant demand has been pushing up rents, allowing landlords to achieve better yields than they’ve seen for more than two years.
“With lower property prices and higher rents, the yield they can achieve on a carefully selected and well managed investment property can be significantly higher than other forms of investment.”
Opportunities
In June there was more misery for Britain’s over-inflated housing market with the Halifax reporting a 2.4 per cent monthly drop in prices. But last month will more be remembered for the collapse of the housebuilding industry, with rumours that Barratt was gearing up for a massive rights issue, rival Bellway issuing a profit warning and shares in the sector going into freefall. Residential developers and builders are feeling the heat, but again, this has thrown up opportunities elsewhere for big residential investors.
According to research by estate agent Hamptons published last week, new-build developers are offering discounts of up to 30 per cent to big buy-to-let investors who are prepared to buy in bulk, i.e. three properties or more.
“We are about to enter a unique window of opportunity for residential funds bulk portfolio investors. For the next six to eight months, developers will need to offload property at good rates.
“Contingency plans are being pushed forward and for the residential investor in the right place at the right time, there are some excellent investment opportunities, which will secure a strong return over a five to ten year period,” said Matthew Tack, director of global investments at Hamptons.
However, life remains very tough for first time buyers. Those who need a big mortgage cannot get one because lenders are not dishing out loans, as the global liquidity crunch tightens its grip.
Ramping Up
Research from financial information firm Moneyfacts claims that the interest on a two-year fixed rate mortgage is now above 7 per cent, making it the most expensive time to borrow since 1997.
Lenders have been accused by mortgage experts of unfairly targeting the consumer by ramping up the cost of loans on their most attractive deals.
And figures from the British Bankers’ Association (BBA) last week did little to allay fears that the situation in the mortgage market is improving. Loans approved for house purchases fell 20 per cent last month, from 34,752 in April to 27,968 in May.
Looking on the brighter side, the credit crunch will not last forever. When house prices fall, it provides a platform for them to rise again at, which often happens at a rapid pace.
The wise investor will keep his wits about him, and be ready and waiting when the opportunities begin.