Understanding and navigating the risks and opportunities of today’s property investment marketplace
It’s hard to know quite how to react to the daily reports of new infections and a soaring death rate across the globe, and now at home. No longer a Chinese problem, or something affecting our neighbours in Europe, the Coronavirus pandemic reached our shores several weeks ago and has taken a firm hold here.
And it’s unclear how long we will remain in lockdown for. While the NHS battles Coronavirus and people stay indoors to try and stop it in its tracks, the economy remains on a knife edge and business holds its breath. But there are industries still functioning, business is being done and we are not lost.
The picture is very much the same for property investors. Some tenants will be struggling financially, and yes of course we have a duty to support them as much as we can whilst safeguarding our own personal and business interests. And property sales continue to go through.
“This is a shutdown not a crash.
The property market is being put into an induced coma.”
Coronavirus is likely to impact the housing market in a number of ways, and as a result property investors.
- Confidence: likely to fall making buyers exercise caution in the short term except for the most committed. This is likely to change once global markets stabilise and some semblance of normality is restored.
- Practical Considerations: the impact the current lockdown has on necessary activity- like surveys and valuations, although banks and building societies are already moving toward a virtual or estimation-type valuation approach that means property visits won’t be necessary.
- Economic Impact: how it affects affordability and the drivers that affect that. With so many people furloughed or without jobs and the lockdown in place there is an obvious effect on economic activity.
But all of these are temporary measures. Research Institute Capital Economics has suggested that a short, sharp recession is likely to be the worst case scenario.
According to Lucian Cook, head of residential research at broker Savills Plc there may be a drop of 10% in property values this year. Consider this alongside the fiscal stimulus package announced by the Government to support the economy and safeguard jobs, and the medium to long term picture is actually positive.
And with changes coming to taxation on rental properties and mortgage interest that we anticipate will see “accidental landlords” selling properties at reduced rates to mitigate their exposure to additional taxation, there are actually some good opportunities for the professional property investor on the horizon.
But the ace in the hole for any investor has to be the Bank of England Base Rate currently set at 0.1%, a historic low. That reduces mortgage interest rates and means that investors have highly competitive mortgage products to choose from to finance their portfolio.
But there has been some adverse behaviour on the part of the banks.
And David Liddle, Director at mortgage broker Liddle Perrett said some banks have failed to pass on interest rate cuts to customers,and some tracker products have been withdrawn to increase their margins.
In fact Barclays PLC has withdrawn many of its 60%+ loan to value mortgages for homebuyers and landlords.
So it’s not only the seasoned professional that can seize these opportunities. For the first time investor the same opportunities apply, but we would add a word of caution here. The markets may be volatile for some time, but that is expected to be short lived.
But our advice remains the same as it did before the Coronavirus outbreak. Seek professional advice and support to help you understand and mitigate the risks, and fully utilise the opportunities that are available in the property investment market.