The Evolution of Residential Property Investment
Despite additional levy’s on landlords in the most recent budgets, disappointing stock-market performance over recent times, along with poor returns on pensions & other investments, more and more people are still looking to invest in Residential Property as part of their overall investment portfolio.
Frank Webster of the FK Inspired Investment team comments “Generally people have a short memory with regards to almost any market. For example, people remember the stock market crash after the Dot Com boom, but not so much the boom itself which was enjoyed for many years previously. Equally, people remember the last few years of substantial house price gains but not so much the falls or the static period over the early to mid 1990s”.
Property investment has certainly caught people’s imagination over recent years with many building substantial portfolios or at least acquiring a holiday home, or a single ‘buy-to-let’ flat to contribute towards their retirement savings. This focus has also caught the attention of the Governor and his team at the Bank of England who worry about investors’ ability to repay what they are borrowing and fear it could affect the ongoing economic recovery. So, they too are poised to increase the legislation attached to investment lending.
But is property a temporary investment fad or is there more to it?
Frank adds: “One of the biggest changes in attitude towards residential investment during the past 20 years is the tendency to consider property as a ‘wealth’ generator. Many investors do not require large borrowing – they are cash rich and will seek advice from professional search agents for the right time to buy and prefer sensibly to buy at times when prices fall (yes, believe it or not there are times when it is possible to pay less – no bargains, those have long since gone – but you can buy for less”.
So why is property such a good choice for these investors?
“History (and experience) shows that for those who are able to buy at this time, the gain could well continue to be significant but the investor should expect to do so for an average 10 year period” says Frank. Between 1968 and 2008 gains have totalled 170% according to the Nationwide, some 40% for each decade. However, if and when we build sufficient homes in the UK then the rate of house price inflation may be slower but it will still be upward. “It is going to take a very long time to build sufficient homes for an ageing and growing population” comments Frank.
It is important to note that many investors borrow money to purchase property and that the interest payable on this loan is usually covered by the rent charged to a tenant. Therefore, property growth should perhaps be considered in relation to the deposit paid for the property rather than assuming the property has no mortgage.
Frank continues “Young mobile people are still inhibited from buying by the costs, complications with ‘stress tests’ and other hoops to jump through as a result of the credit crunch. These same factors create a market for Investor Landlords looking longer term and who can ride out bad times on the back of good income, low interest rates (it is still likely rates will remain relatively low for some time to come) and the prospect of long-term capital growth”.
The highly geared founding ‘Buy-to-let Investor’ brigade of the past decade are now being superseded by new (cash rich) players looking to capitalise on the lows of our cyclical property market.
Frank concludes by saying “Residential investment is evolving. There is scope for those who seek longer-term capital gains (Oxford is the ideal market) and those who require income (we can source plenty of opportunities in Oxfordshire) and who will also take up appropriate financial products to sit alongside the property (rent guarantee and solid insurance products as well as a competent and qualified agent)”.
“Beyond the individual investor and keen to encourage continued investment in the private rented sector, both the Homes and Communities Agency and the Chancellor have launched initiatives to offer institutions an opportunity to invest on a large scale; the aim to provide long-term funding to new private rented housing in England”.
Investment in the residential market looks set for ongoing and indeed considerable expansion. Both current and future governments will ignore the private rented sector at their peril as housing needs increasingly become a key concern to many people.
To ensure a fair chance for first time buyers, the Chancellor has focused on an easy route for tax collection by requiring buy-to-let landlords or those purchasing second homes to pay additional stamp duty on a purchase from April 1st 2016 and whilst this will add £8,800 to a £250,000 purchase, developers and indeed vendors will need and will still be willing to deal with investor purchasers who are ‘purchase ready’ and able to proceed quickly. Yes, the changing environment and increased costs are a cause for concern to some but the property investment sector has done well for investors since the mid 1990’s. Henceforth, much will hinge on a person’s reasons for entering the buy-to-let sector. A qualified agent will be able to advise on a sensible and planned strategy for the purchase and then the ongoing management of that investment. And as usual, don’t believe everything you read in the Press!
In recognition of the need to take advice not only from a qualified search and acquisition specialist but also independent financial and tax advice, Finders Keepers is holding a special seminar for both new and existing landlords on 26th January 2016 – if you would like to attend please email us for further information firstname.lastname@example.org