Property Market Update and Andy Murray
Having recently returned from annual leave last Sunday I was taken aback by three unusual events. Firstly the weather - it wasn't raining. Secondly Andy Murray had won Wimbledon and thirdly more positive news on the UK housing market.
I mentioned in my annual housing market prediction for 2013 that Government initiatives were likely to support the housing market and that the Government had signalled it's intentions clearly. This was controversial as there are many commentators who felt that such intervention in the housing market would lead to an unnatural market and First Time Buyers taking on property debt may, should the market drop, potentially find themselves in negative equity.
However, it was becoming clear that intervention was necessary. Unlike pervious property recessions, there were far fewer forced sellers or repossessed properties this time around, thus creating a stand-off between sellers who were not lowering prices and buyers who were not prepared to buy at that level. This created a dysfunctional market where nothing was moving.
The Governments commitment to the market seems to be paying off with initiatives such as Help to Buy scheme gaining traction. Government backing of mortgage loans (funding for lending scheme) has perhaps been more important as it has reduced banks perceived risk profile, allowing more sensible interest rates which are finally trickling through for higher loan to value buyers such as First Time Buyers. This combined with an overall better economic picture, have the economists predicting 20% drops in the market, rightly, going into hiding.
So is now the time to buy? Whilst not impossible it's unlikely we are going to see significant drops in the market for the foreseeable future in our opinion. We feel the Government have enough levers to support the market and are clearly committed to do so. Interest rates can be fixed at relatively competitive rates and therefore for the residential buyer it's seems a secure footing to get onto the property ladder. Our thoughts would be to fix interest rates for the long term.
Investors/landlords have been taking advantage of the market conditions for some time and therefore perhaps it's time to pour a little cold water on this enthusiasm. First Time Buyers are entering into the market again and this may push up prices on assets that Landlords typically invest in. Also, It's easy to believe that the present time is normal market conditions. It's not. Interest rates at 0.5% are a long way from normal, and just as we can assume the Government's preference will be a for a little inflation, there is a fair chance they will overshoot (better this than to undershoot). If inflation does overshoot the tool of choice to cool the property market will be Interest Rate rises. Investors need to account for this and understand how their mortgage products will be affected. Long term fixes / trackers (with low margins) will help alleviate these rises as will a lower LTV, but if you are signing finance at 3% above current interest rates, and rates return to normal (5-6%) where does this leave your margins? Interest rate rises are certainly sometime away ye, especially given the comments from the new Canadian head of the Bank of England, but be careful that you sign up to competitive mortgages rates, low margin trackers or long term fixes could be beneficial in the medium to long term.
Another danger on the horizon is stirring and this is in regulation. We are beginning to see the public reacting to higher rents and higher numbers of renters by calling on increased regulation in the sector. Interestingly the increases in rent, although mostly demand driven, are in part caused by dramatic increases in the regulatory burden recently put into place such as EPC, TDS, Licensing, etc., and have lead to increased fees associated with letting. But that is unlikely to stop the demand for more. Already we see the Government wanting landlords/agents to police immigration and for letting agents to be licensed. Whilst PAD4U does encourage regulation of letting agents (the immigration idea is just barmy), this does not gel with the Government and the public's desire for lower fees and lower rents in the industry. Ultimately higher regulation in a sector costs more money - you only need to look at the highly regulated legal sector to see this. Whilst we don't envisage the Government trying to bring rent controls back, we are likely to see some increased regulation and this will increase costs for both landlords and agents with the Government and the public not wanting these costs to be passed to tenants.
However, overall we remain bullish on the housing market for investment and the Manchester locality specifically. If you are thinking of building your portfolio please do not hesitate to ask us for help and information - we have already actively helped a number of landlords successfully build their portfolios. Call Luke on 0161 257 2441.