Investment Property Market

The Problem : Money Market dynamics affecting property purchases

Long term principle of lending: Banks lend to you based on your own level of affordability. This had typically been calculated as a multiple of earnings. In recent times, banks have extended loads far beyond the long term average affordability ratios according to the latest Woolwich Mortgage Affordability Research.

The reason for that has been because of ‘cheap money’ as a result of the creation of specialist debt instruments (CDO’s) and low interest rates over the last five years when compared with the 30 year average. www.bankofengland.co.uk

Essentially, the banks found a way of breaking up their mortgages into little parcels. Some contained the good bits (equity) and others had the bad bits (debt). They sold these parcels on to investors; the banks no longer had their fund committed to those loans and could start lending again.

Except, no one kept track of the parcels… which were the good bits OR bad bits or how strong the mortgagees ability to meet the monthly mortgage payments was? Now the banks don’t have access to ‘the’ money because no one wants to buy these instruments.

We are back to the good old-fashioned principle of affordability. Banks require that 25% deposits are made on buy-to-let investments.  Although we can, as residential property consultants, show you a way that you can acquire property cheaply we would suggest that you would typically need £ 25,000 in order to work with us.

The Security:

Fundamentals of the U.K investment property market

Prices will be driven forward where there are shortages in supply in relation to demand.

Demand

• Average household size is declining

• Due to the high divorce rate and people getting married later there is a need for more houses

• Aging population

• New housing stock not being released

• Net inward migration increasing: 141,000 more people enter the U.K than those that leave

Supply

• Restrictive planning and greenbelt protection

• Builders not initiating projects due to poor sales

According to the Barker Housing review 220,000 new homes need to be built per annum. Last year, only 167,500 new build completions were made (Department for Communities and Local Government). A massive housing shortfall of 52,500 each year!

Investors understand that property market investment is long-term.

In the medium term: the lack of housing in the U.K and limited availability of land combined with a growing population will ensure healthy capital growth.
 

 
Opportunity: The need to sell

We cannot predict when money supply will return. There is an opportunity, right now, to go ahead and purchase BMV property where the rent will cover the mortgage.

People have situations external from the market which they cannot get away from;

• Relocation

• divorce

• Illness

• Problem tenants

• Financial difficulties

We take an ethical approach to property sourcing giving these people a solution, whilst creating an investment opportunity for those knowledgeable investors to grasp a hold of.

Residential investment property markets have a faster correction than commercial property market investments (Michael Ball, Reading business school). While everyone else is waiting for signs of improvement our investors will feel comfortable. They have found that rentals are improving as more people do not have the larger deposits banks require to purchase property.

When the deposit requirements change, first time buyers will come streaming back into the market. Until then, rental yields will continue to rise and rental vacancy period decline.

The Association of Rental Letting Agents (ARLA) June 2008 report: shows 39% more tenants than properties (historical high) and average vacancy period of  only 3.2 weeks.