property investment

In many ways it can be difficult to look too far ahead in the midst of the worst pandemic in living history. The media is full of doom and gloom; economists are suggesting a crash in property prices and the government seems to announce new financial bailout packages every day. The key to any long-term investment is to try to look beyond the short-term challenges – granted, in this case are extreme. History shows that short sharp economic shocks can lead to a sudden downturn in property prices. However, if we look back at the 2008/9 financial crisis and others before, the bounce back tends to be fairly quick. 

Buy to let industry 

On one hand we have the government encouraging mortgage lenders to accommodate mortgage holidays for property investors/landlords while reducing the burden on tenants. On the other, landlords will have challenges when looking to recoup lost rental payments while their mortgage liabilities will not be reduced. This is bound to cause some confusion and concern within the buy to let industry but for those looking to the future, there will likely be opportunities aplenty. 

Rental demand in the UK 

It can be very easy to get caught up in the media headlines. The doom and gloom forecasts for the future while ignoring the long-term opportunities. So, let’s take a look at the UK housing market: – 

  • Undersupply (some would say chronic undersupply) of new builds will continue
  • Population continues to grow
  • House prices generally out of the reach of first-time buyers
  • For many, private rental is the only option
  • Cheap mortgage finance
  • Chronic shortage of private rental properties 

When you see these snapshot facts about the UK property market it does give you a little more confidence in the medium to long term. Nobody is suggesting that the UK economy, or the UK property market, will exit the coronavirus pandemic unscathed. That is just not possible. However, the predictions that UK property prices “could” fall by more than 30% tend to lack credibility and support. Have you ever noticed how these worst-case scenario comments are always preceded by the word “could”? 

Mortgage lending 

While traditional lenders have caught the headlines, with many retreating from the mortgage market in the short term, private banks and niche lenders are still operating as “normal”. So, while competition may not be as intense when raising funds, and there has been a slight uptick in wholesome money market rates, base rates around the world have flatlined. As the perceived risk factor associated with the coronavirus pandemic falls, this will reduce the premium on lending rates in the wholesale money market. At the same time, due to the short to medium term economic challenges it is unlikely that base rates in the UK or around the world will increase significantly in the short term. 

It is also worth noting that as well as remortgaging, which has remained a relatively liquid market, a growing number of long-term property investors have been releasing equity. Many are willing to discount the probable short-term volatility in property prices and investor sentiment while keeping their eye on the medium to long term. There was a recent survey by Knight Frank suggesting that the London luxury property market would only fall by low single digits in 2020 before rebounding back into positive territory in 2021. Whether this turns out to be correct or not, it is encouraging to see experienced property experts taking a more problematic approach to the challenges, as opposed to publishing attention grabbing headlines. 

Conclusion 

As with the 2008/9 financial crisis, nobody can say with any real confidence what will happen as we finally emerge from the coronavirus pandemic. We know that governments have ploughed billions of pounds into the economy/employment market and are determined to keep the property sector afloat. Interest rates have flatlined, hitting record lows, and mortgage funding will likely remain relatively cheap for the foreseeable future. 

So, now is the time to be looking to the future, making plans for your long-term property portfolio and taking advantage of relatively cheap finance which won’t last forever. Those holding out for a “30% fall in property prices” may be sorely disappointed and miss out on a credible long-term buying opportunity.

 

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