So we are going to talk about the logistics, regulations and the likely impact on property prices that this disruption we find ourselves in will have.
In this webinar we are going to cover everything from the logistics of viewing a property, buying a property without viewing, do you buy something that is ready now or off-plan?
We will also go into obtaining a mortgage, how many products are available for you? Why have mortgage lenders stopped lending, when will they start back again?
What if a tenant doesn’t pay his or her rent, what are the rules around getting a new tenant?
Property prices over the next decade.
Can you still view a property? Well, the simple answer is no. However, if you are buying an investment property this really should not be too troubling. I know that this may be alien to you but the reality is if you are buying a property for investment you don’t need to view the inside. There are two main things you have to think of when buying an investment property, the first is that will in rent and the second is will it grow in price. It is that simple. If the property is not up to scratch inside then a simple low-cost bit of TLC can always get this up to scratch. However, the majority of time we have been in the properties and know the quality of what you are buying.
So let us take the first rule of an investment property, will it rent?
Although you want your property to be in a good enough state to rent there are far more important things to establish. Prior to advising any property, we are looking at the area, transport links, supply and demand for property, what the rents have done over the last few years and a big one is the crime rate in the area. Many clients don’t think about crime rate but if you have a high rate of muggings or sexual crime in the area you simply are not going to get the rent. These are all things we do prior to advising.
Once we have established the property will rent we then look at the potential growth. Now if you were buying at market value you could be forgiven for waiting until we know how long the lockdown is going to continue for. However, if you are buying at 10, 15, or even 20% below market value you have to ask yourself what are you waiting for. We will delve deeper into this at the end of the webinar but the property market does not react like the stock market. You won’t see daily fluctuations of 5-10% like you can in the FTSE 100. The property market is a more stable slower-moving commodity and therefore should not be judged on a day to day month to month or to some extent a year on year basis.
The majority of you when investing will be holding property for longer than 5 years so year to year fluctuations do not matter, but again more on this later.
Now you still have a choice, you don’t have to buy something that is ready now. You could buy something off-plan and of course, know that all the furnishings/appliances etc are brand new with a guarantee, therefore, you know from day 1 you won’t even have to give it a lick of paint.
Regardless of what you buy. You have to make sure it is below market value or you are simply buying something with no protection against market fluctuations and of course why use a company like ours unless you are getting below market value.
Now, this is the tricky one. Things are literally changing day by day. So let’s wind back to before we started with the virus. The reality was banks were lending and the buy to let market was moving along at a solid pace. However, one big thing has impacted mortgage lending when the virus hit and that is the mortgage holiday that has to be given should a client request it. So banks first of all were hit logistically when 10’s of thousands of clients were calling up wanting to request a break in their mortgage. You did not have to prove anything just that you wanted a 3-month break from paying your mortgage and the banks had to give it. So, first of all, there was a huge shortage of staff to even give new mortgages.
The second issue banks had was that when you took out a new mortgage a day later you could then ask for a 3 month holiday which again they had to give. So, of course, this made no sense to the banks so they simply stopped lending.
Just to give you an idea of the numbers at the start of March buy to let purchasers had a choice of 2,897 mortgages to chose from. At the end of March, this was 1,593. Now although it will take a little time we have seen lenders get back to full capacity such as Skipton and TSB have bought a number of their products back.
So what is the solution? Simple, again if you are buying off-plan this becomes irrelevant as you won’t be completing for a while when all this is over. If you are looking to buy something now again you need to buy below market value, but importantly you need to get something where you can have a stipulation on the reservation form that you will be exchanging once lenders are back offering mortgages. Developers are fully aware that you need to get into the development to get a mortgage valuation so this is something we can work out with developers and lenders.
So why are you waiting to buy?
This is the question you should be asking yourself. Typically clients wait for 3 main reasons
They think the property market will drop and therefore their property will become cheaper to buy
They believe they can make more money in another investment outside the property market
Waiting to see what else comes to the market
I will answer these separately as typically the above 3 are a fallacy.
So if you are waiting for prices to drop then you may be waiting a while.
First of all, I would say what do you think prices will drop by. So if you think prices will drop by 10% then you need to buy something that is over 10% market value. Simple you then have a no-lose scenario as if prices drop you are still up, and if it doesn’t drop and in fact increases then again you have got in at the perfect time.
Now because of the situation, we are really able to drive prices down and this is given us the advantage to get deals for our clients.
I know some of you will think well if they are 15% below market value now, what happens if the market drops will I get 15% off the lower price. The answer is no, the developer simply won’t sell. Don’t forget we do not use developers who need your money to function, if they did you should not be touching them anyway. So the reality is, any builder worth their salt will have to make a profit and therefore will simply hold onto the units until the market re-corrects and sell at a later date.
The best bargains to be had are in times of uncertainty which brings me onto the average property price over the last 40 years.
The second point is that you feel you can make more money outside of the property market. Again look at the obvious candidates, the FTSE 100, bond market, savings, ISA’s. The only stand out the candidate is FTSE 100. I have no doubt you can make more in the stock market in a month than you can in the property market over the same time period. We have seen only over the last few weeks. But wind back time 3 weeks prior and we saw over a 30% dip in the stock market within weeks. Again you simply don’t get this kind of volitivity in the property market.
The last reason to wait is that you are looking to see what else comes to the market. I always maintain that we are not the only company out there. There are a number of good companies and I believe that the best companies should always get you deals which pretty much compare when you put them side by side. So what really are you going to get by waiting, an extra 0.5 or 1% a year? In the whole scheme of things, this is not a great deal. You simply have to make sure you are getting the right price from the start this is where the foundation is.