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17:26 PM, 2nd April 2013, About 11 years ago 13
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I have had a ‘gut feeling’ that the property market would turn in 2013 for at least four years, however, until now I have not been able to provide any real justification as to why I believe the 2013 buy to let gold rush will occur.
A recent comment on our forum got me thinking about this again. It said something along the lines of …
“do you think property values will rise when the governments incentives to help fund deposits for first time buyers kicks in next year? I’m seriously thinking about bringing my plans forward and buying now in advance of the next property gold rush”
There are plenty of other reasons for the property market to turn such as; pent up demand from first time buyers, low interest rates on savings and the recent news of the banking crisis in Cyprus. In simple terms, more and more people will be looking at property as a safe haven, particularly in the UK.
The UK is one of the worlds most established property markets, especially in terms of buy to let financing. Unlike many other areas of the world deeply affected by recession, the UK is very different in terms of property supply and demand. In places like the USA, Dubai and Eastern Europe their property bubbles were inflated based on greed and availability of easy finance. The basis of property demand these countries experienced was fuelled almost entirely by market speculation, there wasn’t really as much demand for the living accommodation being built as people actually wanting to live in the properties they were speculating upon. The reality in the UK is very different. There seems to be little if any reasonable argument to suggest that the UK doesn’t need more property. Even during the 15 year property boom of 1993 to 2008 the UK figures were showing that supply of new property was significantly more than six figures below demand year on year!
There have been early signs of a property based recovery in the UK with buy to let lending having shown progress beyond other forms of lending for some time. This is explainable in part due to new investors entering the property market through frustration of the returns being made of their savings. The one thing that could really get the 2013 buy to let gold rush going though is the recent budget announcement for further support for first time buyers to get on the housing ladder. In my opinion, and apparently many others, giving more people the ability to buy without the need to save a 20% deposit will lead to increased property demand from the people who have been dubbed “Generation Rent”. This demand will not be met by supply.
The relaxation of planning rules to convert offices into residential accommodation looked promising in terms of increasing supply. However, the cost of these conversions is often higher than the end values of the developments, especially if they are outside Central London, so why would anybody do them?
The reality is that new build housing stock is selling for less than the cost to build in most parts of the UK. Until that changes, why would anybody build?
Property values have fallen much less in the UK than in other parts of the world. In fact, the only reason property values have fallen is is the availability of finance. Once that’s fixed, and it looks like it could be VERY soon, what’s going to happen to prices?
There is plenty of unfinished housing stock and many more developments which have slipped into receivership over the last 5 years. Rather than cutting their losses though, until now the banks have allowed these properties to be let. However, the days of reckoning are upon them and these developments are being sold for significantly less than the build cost. At last the banks are cutting their losses and re-capitalising. I look upon this as a window of opportunity, a grand sell off, but it will not last for long. When there are no more bargains left to be had and finance is readily be available again everybody will jump on the bandwagon. As the saying goes, “if you can see the bandwagon, chances are you’ve missed it”
Developments being sold off by official receivers and liquidators are being snapped up by cash rich groups. In many cases these groups are re-selling the properties at bargain prices and small margins to turn a fast profit. I know this because I have been seeing these deals first hand, almost on a daily basis for the last month or so. I suppose that’s one of the benefits of having been in this business for nearly quarter of a century and having made so many contacts! These bargains will not last though and I can already see the 2013 property gold rush gaining momentum.
In summary, I feel that 2013 will prove to be the best time to invest into property for at least 13 years.
If you would like to find out about the types of deals I’ve talked about in latter part of this article forget Estate Agents, Rightmove, show homes etc., they can’t be found there. The true bargains I’ve spoken of in this article are sold “off market” to people “in the know”. They are in a position to fund purchases quickly and with a decent deposit of 30% plus.
Many “Property Clubs” profess to offer services to investors with a desire to seek out such bargains but BEWARE, they charge massive fees and are often more focussed on the fees than providing the services they advertise.
I am, however, aware of one person who is retained by the sellers of these types of deals, therefore you pay nothing. His name is Kelvin, you may prefer to refer to him as “Your Property Concierge” 🙂
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Edwin Cowper
18:45 PM, 3rd April 2013, About 11 years ago
I think your scenario is interesting but incorrect.
I agree with you that the price of new build will rise substantially in the short term And so will builders profits.
But even for new build I think the long term will be a drop in new build prices after, say, 5 years large gains.
Why?Because those 20% loans have to be repaid to the government /refinanced or start bearing interest. Also interest rates will perhaps be substantially higher and many people who bought at rock bottom with large mortgages won't be able to pay. Again. All we are getting is an inflationary boom/bust cycle again in new houses.
The second hand market will be largely in the doldrums. There will be virtually no gain because there is no incentive to buy them. So there will be a 2 tier market.
Whoever wants to buy a second hand house will be much worse off doing so. It will distort the housing market. But you'll generally get a lot more house for your money.
I suggest the best way out of a second hand house now and in the foreseeable future is to do a buy to let mortgage of it and release some equity, and then buy a new house.
Any ideas who would be best to help with the finance Mark?
21:14 PM, 3rd April 2013, About 11 years ago
Well 2013 was always going to be the turning point in the property market! I am long enough in the tooth to have seen several cycles of boom and bust and the tide is turning. Based on the basic principle of economics, supply and demand, we are an island, housing stock is limited and the population is increasing. 2012 gave us a feel good factor with the diamond jubilee and the Olympics. People are sick of recession and want to move on. Other disasters in the economies of Europe have given us more confidence in our own and recent government incentives have been the icing on the cake. So will this mean more home ownership and less market for the buy to let? I do not think so. Young people like renting. It gives them flexibility in their careers, in their children's education and let's face it spares them the burdens of home ownership when the landlord will fix it. That said from the heart as I have to install a new boiler in one of my properties! Middle aged people are also looking to their pension shortcomings. Where can you have full control over your pension fund? Only by owning all the funds yourself! The elderly more and more are ridding the burden of home ownership if only to defeat long term care costs so all in all the property market has to move forward.
23:10 PM, 3rd April 2013, About 11 years ago
Does anyone want my properties ? I got sucked into this awful business back in the bubble of 2006/07. Been in negative equity ever since.
Countless problems with tenants, tradesmen, housing benefit departments, tenancy deposit schemes, etc...
Oh, that's for approx. £200 per month of profit per property at lowest ever base-rate trackers (before repairs, tenants who can't pay or won't pay), and always hoping to avoid the big bills (roof, boilers, strutural...) or bank hoping to rip-off change terms
So for the new generation of 'wannabees'... DON'T listen... !
23:59 PM, 3rd April 2013, About 11 years ago
Neil, I know exactly where you are coming from....
0:06 AM, 4th April 2013, About 11 years ago
No 2013 will not be the return to stupendous growth in house prices despite what the CEBR state.
The simple fact is the housing market is still hugely overvalued. The bubble is being propped up 0.5% interest rates, foreign investors panicking recklessly overpaying for London property as some perverse cash box and stupid sub prime lending to first time buyers.
It does not make for a healthy market. As the economic conditions get worse the cost of borrowing will go up irrelevant of base rates. Inflation is out of control and wages are still frozen.
If you want to speculate on house price growth do it with your own money and don't encourage others. I just see people getting burnt right left and center.
Mark Alexander - Founder of Property118
8:36 AM, 4th April 2013, About 11 years ago
@Neil - hang on in there. I purchased my first property at the top of the market cycle in the late 80's. I still own it and it has quadrupled in value.
Somebody once taught me that "winners never quit and quitters never win".
Several of my friends handed their keys back to the banks and building societies in 1992 when interest rates peaked at 15%. Some of them were bankrupted as a consequence and are only just recovering.
I did the opposite. We all went through a tough time . I worked my socks off, not just in terms of working 18 hour days for many, many years but also working smart.
I know that I came off best.
I also purchased properties at the peak of the 2007/8 property boom. I'm in negative equity on some of those properties too.
20 years from now I will be 65.
With a bit of luck I will still be alive, I will still own them and I will be enjoying the benefit. In the meantime, as Gavin has stated, I count myself lucky that interest rates are at a record low as opposed to a record high and also that rental demand it also at a record high.
Being a landlord is a very tough business, there is far more to learn than you can possibly imagine in the first decade or so but I am very glad I stuck with it.
I wish you well.
Neil Patterson
10:39 AM, 4th April 2013, About 11 years ago
I am always very cautious with any predictions having studied economics, follow the BofE reports and seen many cycles in my previous banking career. No economist can really predict trends much further ahead than maybe 2-3 years as the economy is like nature in that every input change or stimulus affects another part of the economy usually in the opposite direction. It is this balance that is hard to control and predict.
From an informed gut feeling and past experience of the market I would say that if you have money and can borrow at reasonable LTVs now would be a good time to buy. Yes existing Landlords are in difficulty due to house price decreases high LTVs and lenders pulling out of the market and this is very unfortunate, and caused by a combination of the perfect storm.
However the first rule in economics is the rule of scarcity. If a resource is not infinite like air it will have a value with a price dependent on the balance of Supply and Demand.
Housing is currently scarce whether you want to rent or buy and in the short term will continue to be so as even when times were good supply did not exceed the demand for new houses.
Prices have already dropped and what is holding back larger increases in price is the suppression of demand from the lack of credit and confidence.
If the economy has improved, which will take over 3 years, enough for there to be a need to increase interest rates what I think you will see drop is the margins on lending as banks will have finished re-capitalising and competition will be greater. Therefore any BofE rate increases I do not think will have a proportional effect on customer costs.
Demand and Supply forces will I believe dictate that if you have money and can invest carefully at the bottom of a depression, this is where people make profit and has historically always been so.
19:46 PM, 6th April 2013, About 11 years ago
please let me know about any deals you have.
Alex Williams
14:32 PM, 7th April 2013, About 11 years ago
"The simple fact is the housing market is still hugely overvalued. The bubble is being propped up 0.5% interest rates, foreign investors panicking recklessly overpaying for London property as some perverse cash box and stupid sub prime lending to first time buyers."
Yes, true, but I think things will be just as they were after the early 90's bubble, things will stagnate for 10 to 15 years before everyone realises property is once again under valued and there will be another boom. I doubt that interest rates can now ever rise much or if they do it will take years. In order for them to rise there will have to be a re-biasing of the mortgage rates people are getting in the market now and that is a slow process because were it to be swift loads of people would go bust and the economy would suffer.
Like Mark A I also bought in the early 90's boom and have done well out of that. I bought too during 06-07 and those properties are not in negative equity (because I was careful what I bought) but have not gained in value much either. Like mark my strategy is basically "20 years from now I will be 65."
Basically property allows me to hold an asset class at little or no cost to myself for donkeys years. That asset class is more likely to rise in value than shares for capacity reasons, for fuel pricing reasons and so on. It could all go horribly wrong but fingers crossed ......
18:30 PM, 20th June 2013, About 11 years ago
Totally incorrect as far as i am concerned. Its just speculation to help landlord get a better price on their properties. I have foind no evidence that the house prises are rising at all.