Good News for Property Investors
Well it looks like change is upon the market again. It appears that the market is truly looking up now as we are finding a number of interesting dynamics in the market right now that will affect all investors.
I guess you could call the following a splash summary of where and what I see happening in the market. I have never been much of a social commentator but I guess the longer you are in the market the more you realise how much the property cycle runs in similar circles.
Firstly the builders have had a lot of interest in their property with our Property Acquisitions Manager’s contacts reporting asking price on properties sold. This is a marked difference from the last 2 years and not at all surprising. It also appears that a lot of developers have healthy land banks further fueling their optimistic view of the market.
I believe this situation will only drive down discounts further as people from all around the country take the first steps into buy to let investing. There is a distinct shortfall of completed property with discounts attached, it appears that the ferocity of buyers has taken its toll on supply of newly built property. I don’t think this will let up over the coming years as more and more investors enter the market for the first time and existing investors gain more confidence in investing.
I believe that we will see significant continued interest in overseas markets. I think that although a lot of people will get burnt in these overseas markets they will simply retreat to the safer confines of the UK market. I am a strong believer in build your foundation at home before you venture out. For some people they are risking everything on a market they neither control nor understand.
Interest rates look like they have bottomed for the foreseeable future meaning we had better get used to the current rates. You may have noticed that fixed rates have now crept above the variable rates. So for those of you that got the low rates congratulations and enjoy them.
I am not really one to decide if rates are going to go up or down but I definitely think the trend is stagnant to upwards slightly over the next 1-2 years. The economy has coped well and investors still have a lot of confidence (and equity). Equity has the effect of buffering people against interest rate increases and never has the money from your home been more easy to access. This has had a huge effect on the overall market for property.
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Accounts and offset accounts will begin to have a great effect on those that have learnt how to use them properly over the next 5 years. (If you are interested in learning more about these I will be putting a blog out soon about this.)
You may hear a lot of talk about the effect of petrol prices on the economy and on interest rates. Basically raising petrol prices have the same effect as raising interest rates. The Bank of England raises interest rates to cool the economy by taking money out in the form of interest payments. The higher the rates the more money you pay to the bank and the less money you have to spend on things like holidays and lifestyle things. As you spend less on these things and many others the economy slows and may eventually stall. Raising petrol prices affect everything in our economy because everything has to be transported to somewhere. So if the petrol costs go up so too do the prices in shops, which means less money for the economy. This is why people always talk about raising petrol prices.
Now this is perhaps my biggest risk that I foresee in the coming years for the UK buy to let marketplace.
Rents
I think the rental income you receive will continue to remain stagnant or decrease due to the rate of build and oversupply of new build property in the market centered around the major cities and surrounding areas. I truly believe that this one variable will be the defining factor for Buy to Let market over the next 5 years. This factor could go a number of ways. (I will explain further in a blog coming out soon.)
Now you are probably wondering what all this means. If you don’t understand any of these then please write back and ask for further explanation. I am happy to give more details on any of the points covered.
The important thing is that I think we will have a good solid economy for the foreseeable future. The Bank of England has been very responsible in its interest rate decision, preferring to err on the side of caution that jumps in response to a number of short-term stimuli. This has meant a safe environment for investors. There are so many factors affecting the economy that no one can predict but I have high hopes for a good few years.
My money’s on a win even though I am not a gambling man!
Live with passion,
Brett Wood
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