2017 – A good year for property investors
A few weeks ago, the Footsie went up breaking through 6100 for the first time since summer 2008, and heralding what many believe to be the end of the recession.
ECB chief, Mario Draghi, announced that eurozone interest rates would remain unchanged, and Obabma took a long-legged step away from the fiscal precipice that threatened to plunge the entire world, or at least a large chunk of it, back into an ocean of despair.
You might say that things are improving, and that the economy is finally on the mend, but you’d be forgiven for refraining from playing fast and loose with any spare cash you might have. For real signs that the recession is over we need to see interest rates go up.
A rising interest rate is the strongest sign of a genuine recovery, and the last time I looked – and smiled to myself – it was still stuck at 0.5%. Why did I smile? Because cheap borrowing is good news for landlords and property investors. The even better news is that the grass shoots prefiguring a possible upturn in the economy, combined with the government’s Funding for Lending Scheme, have enabled banks to breathe a little more easily, which means they’re now lending a little more freely. As competition between lenders heats up, dozens more buy-to-let mortgages are becoming available with interest rates averaging 4.69% – a six-year low. Many loans are now as low as 3%. On top of that, there are still many property bargains waiting to be snapped up, particularly outside of London and the South East.
Many buy-to-let investors who didn’t let the negative media of recent years unsettle them, and in fact saw the downturn as a prime opportunity to build their portfolios at a good price, have taken advantage of these favourable market conditions, and now have more financial muscle to leverage with. It takes time and effort to build such muscle, and there is no point in putting off doing it. When people ask me: ‘when should I start investing in property,’ I always say: ‘right now.’
It’s obvious that the UK housing market can’t remain depressed forever, quite simply because the fundamentals underpinning it haven’t changed. There are still lots of people and not enough houses, a fact that exists even before you factor in the predicted influx of people from Eastern Europe, from December 2013, when Bulgarians and Romanians gain the unrestricted right to live and work in the UK.
The simple economics of supply and demand mean that, even though house prices may stagnate for a while, or blithely fluctuate within narrow parameters, they almost certainly won’t plunge, and in time will recover.
For all of these reasons, I think that now is an excellent time to invest in property in the UK, particularly in the North of England, where you can get four or five properties for the price of just one in the capital.
Financial bubbles, crashes, high immigration, low interest rates, the lessons of the past five years; not to mention the mess from traditional pensions, together ensure that residential property remains one of the safest places to store your money long term. If the system breaks down again, investments in funds linked to stocks and shares (numbers on a screen to the lay person) can quickly evaporate. On the other hand houses that you own, that you can see, touch, drive past – these are real possessions in the wider scheme of things – and they always have some intrinsic value.
Steadily building a portfolio of houses using a lot of the bank’s money and a little of your own is one of the most reliable ways to generate a good level of income in the short term, through rental yield, while building a firmer financial base through discounted buying and then capital growth when the market rises, as it has, historically, always done. And if you’re still skeptical because, let’s face it, house prices have taken a bit of a beating recently, and you want some sort of financial cushion, what could be more straightforward than making sure you purchase your property at 25% below the market value.
You only have to look at what’s happening in the sector right now to know that there are plenty of people doing just that.Figures show that, since 2009, rents in the UK have increased by 13.6 percent with landlords enjoying increased yields because of the high demand for their rented property. And house prices are at their strongest for three years showing a 2% increase in the first quarter with a greater number of mortgages being approved. But properties are still relatively inexpensive compared to their pre-recession prices, and renting costs are predicted to rise by a further 4% in 2013. For existing and prospective landlords, these figures, coupled with persistently low interest rates, improved access to lending facilities and a wider range of available mortgage products, are warming signs of a healthy lettings market, and strong signals to become a part of it if you haven’t already.