Executive Golf Magazine

With panic in the financial markets being mirrored on the high street by concerns over Northern Rock’s stability, many investors are feeling bearish.

The 1990s were undoubtedly the time to get into property. Coming out of the recession in the early part of the decade, the United Kingdom saw steady growth eventually turn into something altogether more dramatic as the economy grew significantly.

Large profits have been made – first by those living in urban areas where demand for housing was greatest, and then subsequently in more rural districts where the impact of second home owners started to make an impact.

Then the third wave – blamed for making it almost impossible for first time buyers to make that first step on to the housing ladder – came in the form of property investors, most notably those looking to buy-to-let.

For many potential investors however, the UK housing market has lost its sheen following a crisis in the United States where holders of sub-prime mortgages - home loans to people with weak credit histories - have defaulted on repayments. This has raised the spectre in the UK of a 1990s-style housing crash which led to thousands of repossessions and years of negative equity for homeowners.

However, UK interest rates are not expected to rise to a point where the country’s 940,000 outstanding buy-to-let mortgages cannot be serviced from rental income. Buy-to-let investors account for 9.5 per cent of all UK mortgage debt according to the Council of Mortgage Lenders. They also took up 12 per cent of new mortgage lending in the first half of 2007 – the majority of which was on properties bought near the top of the market.

Despite economic conditions that are seen by many experts as less than settled, the economy is expected to slow but avoid a recession, and demand for rented accommodation is not expected to fall

But for many landlords, the situation is finely balanced and by no means offers the virtually guaranteed returns of a few years ago. A survey of 100 private British landlords conducted at the end of August showed four in 10 would see their profit margins disappear if the Bank of England hiked interest rates above six per cent.

Despite the headlines that suggest a rather pessimistic outlook for one of the investment routes that had – for the last decade at least – been a safe bet for investors, there is always a flipside of course. Ironically, slowing property prices spell good news for buy-to-let investors as it has enabled yields to grow.

Landlord Mortgages, a brokerage specialising in buy-to-let, has published new figures showing rental yields are recovering from a long-term downward spiral. Lee Grandin, managing director of Landlord Mortgages, says: “This can be attributed to a cooling property market, which has allowed rents to increase in line with the healthy capital appreciation these buy-to-let properties have experienced over the last few years.

“As properties in London are still experiencing high house price inflation, yields in the region are still falling, but at a much slower rate than the last quarter. These factors are great news for buy-to-let investors as, due to a lack of good rental property, landlords are managing to increase their rents, offering a much more profitable return on their investment.”

So despite economic conditions that are seen by many experts as less than settled, the economy is expected to slow but avoid a recession, and demand for rented accommodation is not expected to fall, least of all in London and south-east England where there is an acute shortage of affordable housing.

Despite short-term projections of a downturn in the property market, Seamus Nugent of the Dandara Group is another who believes the sector remains a solid investment. “As long as demand for property continues to outstrip supply, it is logical to conclude that long-term, property prices will continue to rise,” she says. “The private rental sector in the UK currently accounts for just 10 per cent of the total market compared with the EU average of 30 per cent. However, the UK market is set to grow by up to 40 per cent in the next decade. Many industry commentators believe that the buy-to-let market will become an increasingly important source of quality housing, as the pressure on first time buyers increases.”

Confidence certainly remains solid among homeowners and house-buyers – at least, that is, according to a survey by the Building Societies Association. Its report found that ‘nesting’ - purchasing purely on a property’s suitability for meeting family needs rather than as an investment - is a factor in 88 per cent of home purchases, more important than capital gains. It also suggests that even if house prices were to fall, less than two per cent of owners who had bought mainly for investment reasons would sell immediately.

The survey also confirmed that the vast majority of investors say they are in the market for the long term and over 70 per cent accept that property prices could fall this year.

Adrian Coles, director general of the BSA, says: “Growth in residential property prices has been due to a wide range of factors including low interest rates, lack of suitable housing stock, a buoyant economy and the ingrained desire in the British psyche to own property. Some commentators have cautioned that the market may be over reliant on consumers’ expectations that prices will continue to rise.”

In reality however, these expectations are quite different according to Coles. “Consumers have a realistic view of the property market and house price expectations have not fuelled a price boom. For most, the primary motivation for buying a property is derived from the satisfaction of owning a home, rather than the financial motivations of capital appreciation.”

For investors considering property as the key to a wealthier future, the message seems to be that the rewards are still there to be had – especially in concentrating on investments in areas that are earmarked or planned for regeneration, such as Stratford in East London which has seen a massive uplift in property values since the 2012 Olympic investment in the area was announced. It may just take a little longer to reap those rewards than has been the case in the recent past.

Membership to the Executive Golf club is free. Simply click here and become a member of Executive Golf

Membership to Executive Golf is free. Please click here to apply to become an Executive Golf member.

« Return to previous page