Blog Post

Market Update

David Boyd Aug 31, 2010, 11:58 AM

On my return from annual leave I soon scoured the papers and Internet to discover the latest property news.   I didn't have to look too hard as it was all over the headlines again, fear of the dreaded double dip!  Hometrack reported lower prices in August a drop of 0.3 percent from the previous month, the biggest drop since April 2009.  Rightmove reported that first time buyers (FTBs) had dipped sharply over the last 12 months only 22% of potential buyers were considering purchasing their first home compared with 31% in 2009.  And finally The Times reports on valuers marking down 1m-plus properties in some cases by as much 20%.

Before I join the mass panic however, I try to think back to the comedy sketch that I watched during the crisis where a distraught homeowner rants about the dramatic fall in his property's value and that he doesn't know what he can possible do about it, his work colleague retorts "why don't you just live in it?".  I think of this to remind me that human nature isn't likely to change very soon, people need to live in houses and there are more people than ever in the UK.  My eye catches another article in The Times concerning immigration, it rose by 20% in 2009 to  196,000.  That's a lot of people and although the Coalition may have plans to reduce immigration, this in the main originates from the European Union of which the Government can exert little control.  I remember also that we have had a sharp bounce in property prices over the year and it is not surprising that this is now cooling off.  Nor is it surprising that FTBs are struggling to get on the market and that this is due more to the restrictive practices of the banks than any dramatic change in the demand from these individuals to purchase their first home  (although certainly renting is being given far more consideration by individuals than before the crisis).  This doesn't change the fact the property market needs FTBs, but pressure will continue to be placed on the banks.  As regards re-valuation of 1m-plus properties this is likely to have more to do with bank bonuses being reduced than any set of factors that is likely to affect the rest of us who live in the real world.  As for the fear of the recent drops in the American market being replicated here, I would have thought that UK banks who securitized a great deal of American mortgages would have realised by now that it's a very different ball game and drawing comparisons isn't likely to yield useful results.

Once though the mainstream media, I turn to the investment weeklies that have been piling up whilst I've been away.  Here I read with more interest that large insurance companies such as Aviva are about to invest in Private Rented Sector (PRS) some 1 billion pounds in fact.  The attractions are clear, residential property is providing handsome yields and is seen as a lower level of risk that many other asset classes.  Interest rates are low and are likely to remain low until 2012 (although they will increase from their current historic low), rents are rising as demand increases as FTBs cannot get on the property market and fewer properties are being built both in the private and public sectors.  Inflation is high and given the Governor of the Bank of England has hinted that if the economy was to weaken more Quantitative Easing (effectively printing money) would be forth coming I think it's likely that deflation is seen as a bigger threat and Bank is likely to err in favour of inflation, which is historically good for property.

Don't misunderstand me, I don't think everything is rosy for the property market, but neither do I buy into the doom and gloom either.  Landlords with a long term investment horizon (at least 10 years), should not flinch if properties do dip, yield is still the most important aspect of property investment and currently there are opportunities within the market not seen for sometime which will provide good yields (on that note we have recently teamed up with movewithus and have a number of repossessed properties for sale - please discus if you are considering increasing your portfolio).  For many of us however, we may not be able to take advantage due to the lack of available finance.  Rest assured however that your money (via your pension) is likely to be invested in the PRS sector over the coming years... one of few investments I'm happy for my pension company to make.

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