Jacqui Darbyshire, the NLA’s representative for Bath asks if now is a good time to invest in property to let.
I read with regularity that a good proportion of buy-to-let landlords are looking to increase their portfolio during the next year. I am fortunate to be in this position myself, but is it really a good time to buy?
Macro-Economic factors to consider:
- The FTSE is currently 18% lower than it was at the beginning of the Millennium. It appears that our big companies are still battling with what appears to be an interminable recession.
- The euro zone crisis continues without resolution which brings uncertainty and low confidence.
- Many other countries including the USA, Spain and Ireland have experienced bursts to their property bubble. It could be that UK prices have been sustained by the current low interest rate environment.
- The continued policy of Quantitative Easing could be stroking inflation and devaluing the pound for the medium term.
Taking the above considerations into account, residential property has generally fared well as an asset class, despite significant geographic differences. And whilst I don’t hold the crystal ball, I am an optimist. It would appear that our low interest rate environment may be with us for a reasonable period to come as both the Government and the Banks wish to avoid the risk of substantial mortgage default.
Property specific factors to consider:
- It would be prudent to assume that rental prices will not continue to grow as they have done recently. Despite increased demand, growing numbers of tenants are in arrears. There is not a shortage of tenants but affordability is now paramount.
- Your investment needs to work on a projected cash flow basis from the outset. Be thorough with your finances and ensure that all the true costs associated with your purchase are included in your investment calculations. It is easy to forget about professional fees, voids and true maintenance costs when caught up with the enthusiasm that goes with a new project.
- Whilst it would be lovely to think that we may see our holdings increase in capital value over the next few years, it is best to be cautious and see any new holdings as long term investments.
- Finally and possibly most importantly, consider your level of gearing (the percentage of the total cost that you are borrowing). It may be sensible to take advantage of the very low rates currently on offer, provided that you have a plan in case borrowing costs change significantly. If you don’t have access to ‘rainy day’ funds then be cautious about over extending your borrowing.
So, is it time to buy?
Well, I am most definitely looking for my next property, but I will need to be more selective than was necessary a decade ago. I know, having been involved with property for thirty years, that there are always opportunities out there. Perhaps we just need to hunt a little harder, think more diversely and have some protection in place to ride out any bumps that might be ahead. After all, no one wants to be pushed into selling at a low point in the property market.
Do you think now is the right time to buy? What advice would you give?