People moan when house prices go up, and they moan when they go down.
They also moan when house prices stay the same.
It was only six months ago that the “problem with the property market” was:
- Interest rates were going to go through the roof
- Rental returns were too low
- Prices were too high
Now we have the opposite and people are still complaining.
Interest rates are on hold with expectations of an interest rate cut very soon. Rental returns are on the increase as demand picks up and prices are either level or falling in many parts of the country. Meanwhile, Darling has forecast that he plans to cut Capital gains Tax to 18 per cent which is a drop of 22 per cent for most investors.
Tricky one, huh?
Well, tricky for me because I am well overdue to hand out some pearls of wisdom surrounding the latest property statistics.
The very notion that following the disclosure of a few key statistics, we're all supposed to rush out and do exactly the same thing, at exactly the same time, has always struck me as rather bizarre.
Today I receive a call from a friend who tells me that house prices in his area (Sandbanks, Dorset - near to Poole) are down ten per cent
"Brilliant" I say. "I will put it in this weeks newsletter. So who's selling and who's in trouble?"
"Well I don't know anyone who is selling" he calmly replies. "The average price down here is between two and three million. We've seen gains of around 300 per cent since we bought, can't see anyone being too bothered about a small dip to be honest".
The trail goes cold as soon as I clasped eyes on it.
I conclude that it is a waste of time talking to people with money. Particularly those with MONEY and PROPERTY,
Clearly I needed to find some poor people who are really suffering from the latest downturn in the market.
I call a friend of mine who bought her first two investment properties in the last 12 months. I have an incentive – what with her being drop dead gorgeous and everything.
"How are those investment properties of yours doing?" I eagerly enquire.
"Not a lot she says, they are probably worth less than I paid for them, if I am to believe the papers".
Ah, I'm in. I suggest dinner so we can discuss property (!?!) in more detail.
As we peruse the menu I can't help thinking that, with looks like this, she must be getting a better deal from her mortgage broker than I am from mine.
"So, what's the plan with the properties then, will you have to sell?
"No" she purrs across the table “In fact I've just picked up another one".
It looks like another dead end. "What, no thoughts of selling up?"
"Well, it did cross my mind" she says, "what with all this talk of mortgage increases and everything. But I'm getting more on my rentals on two of my properties and my agent reckons I can increase the others when they come up for renewal in February. I don't know if I will because I have really good tenants so I will wait and see what happens to my mortgage costs next year. Rentals values have gone up quite a lot since I bought, and I remembered everything you had said about either getting rents or capital gains but rarely both and I am happy to sit it out. In fact I have just put in an offer on the flat above mine because the guy is looking for a quick sell. Do you think if the base rates go down mortgage rates will stay the same? It's in all papers".
I tell her I don't know – but she doesn't look convinced, or impressed.
Clearly this isn't working, well, not as far as the newsletter is concerned anyway. I suggest we save the property chat for later when I offer to give her portfolio the once over. Well ........
Desperate for some really good negative stories I resort to the media.
Ah, thank goodness for that.
"Soaring payments could lead to mortgage crisis for Britons" says the Times.
That's more like it.
"£140 monthly rise for some".
That's what I need – more average figures. '£140 a month for some' sounds just the kind of insight my readers will be looking for.
"Now is the time to rent not to buy” screams another headline.
"Britons spend 17.7 per cent of their income on mortgages"
Every statement seems to provoke more questions than it does answers.
If they spend 17.7 per cent on mortgages where do they spend the other 82.3 per cent?
If we are all to rent, then who are we to rent from?
If fewer people can afford to own property, and more people want to rent property, how can that be bad for a buy-to-let investor? After all, our model is built on supply and demand.
It's getting late and I am getting nowhere. I resolve to do more research the next day.
Another day – another chance to make sense of it all.
I google 'rental market'.
"A radical change in the UK property market will see the rental sector increase its market share by up to 40% in the next decade according to the country's largest rental franchise.
Ian Wilson, managing director of Martin and Co, said: "The buy to let market hasn't even started to take off yet. Buy to let represented just 9% of the total housing stock in 1991 and today it is worth around 12% - yet this is already being called a boom - but it could hit 20% within the next decade
"We are going to see a radical change in property tenure with home ownership and social housing falling and the private rental sector growing. Home ownership is something that is taken for granted but historically, just as recently as the end of the Second World War, the majority of housing in the UK was private rented accommodation."
And his predictions, which he says are conservative, are supported by Martin & Co's rapid growth and strong financial figures. Fee income in November is already up by 45% on the same period last year.
In contrast to Britain's biggest chain of estate agents Countrywide, which has just announced branch closure as a result of the credit crunch, Martin & Co is expanding. It is well on target to increase its 129 branches to 200 in the next three years.
Already it has just completed a major recruitment drive with a national roadshow to find new franchises for UK hotspots such as Liverpool, Plymouth and London.
Across the UK, Martin and Co has reported strong rental performance with fee income now five times higher than it was just four years ago, but there have been some notable hotspots.
Ian said: "The really surprising rental performer has been the Midlands, particularly Nottingham, where the average monthly rent has increased by between £50 to £100. This is because there is huge demand and not enough supply. The local economy is doing very well, so there are lots of young professionals, plus there is also a very strong student population. There was a huge amount of redevelopment going on but that has now slowed and the big flat releases have now been put on hold.
"Although there have been claims of oversupply in Manchester, the rest of the North West is performing very well. Crewe and Nantwich along with Warrington, where the market has been boosted by regeneration, are very strong. Sheffield, where we only opened a branch in June, has shown an excellent performance with 30 lets in just its first three months.
I conclude that whether prices go up, or down, there will always be winners and always be losers.
The phone rings.
"Are you interested in a place in Bath?" says my mate "It's behind those ones you and I looked at last year. Forced sale, around 15 per cent discount because the guy has to sell this week or the bank will take it".
"Yeah, I'm in” I hear myself saying.
"OK, I will pick you up tomorrow and we will go down and have a look”.
I put the phone down, and re-read what I have written so far.
Now, what was the question? What do you do when the market is going down?
The answer – if you are broke, and your rent is well short of your of your mortgage costs, chances are you might have to sell up.
If you have cash, chances are you will pick up a bargain.
Sounds harsh I know – but it was ever thus
You buy low and you sell high – ideally, you never sell at all.
Without doubt, the key to property investment is staying on the log, and over the next twelve months some people are going to find that an increasingly difficult thing to do.
The current media coverage of the property market is not totally without merit. There will be losers when the property market does not rise month on month as everyone wants it to. No one complains when the price goes up ten per cent but how they moan when it falls by one per cent.
The hurt of losing money is infinitely greater than the pleasure of making it.
If you think you might struggle then check your numbers.
If the mortgage and the rent make sense then you are still on the track to financial freedom. The big losers will be those who have bought very recently and haven't seen sufficient gains to justify the pains. Only time can solve this one and I suspect some people will not have the resolve to stay on the log long enough to get the rewards.
Will you?
Thank you to Inside Track
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