It's a Buyers Market

Since the UK credit crunch began in summer 2007, mortgages and property have rarely been out of the news. These two subjects have become the constant topic of conversation all over the country. However, one thing that all of these news reports fail to mention is that we are now in a buyer’s market.

A year ago we were most definitely in a seller's market, now it is most definitely the opposite and as an investor the current market has moved in your favour.

It is impossible to predict if property values will increase forever. However, when you consider that historically, property in the UK has doubled in value every seven to nine years, then it is not difficult to understand that it is a fantastic investment platform if you are prepared to take a long term view.

A successful property investor makes money both in a rising and in a declining market. For example, during a rising market, property investors can release some of the equity built up over time to either purchase additional properties or to keep some money aside to be used at a later date. During a declining market, as we find ourselves in now, there is the opportunity to purchase High Quality properties at a realistic price.  This is why market value trends do not affect property investors who are in it for the long term.

According to Paragon Mortgages' Buy-to-Let index for March, rents are soaring, which is great news for you as an investor. The average rental income in February rose 5.2% over the past quarter and the trend is continuing upwards. First Time Buyers are struggling to get on to the Property Ladder and find themselves forced to rent.

Professional property investors are urged to study the facts, not the fiction, about the outlook for the UK property market in 2008 by answering some important questions:

Short term: - Are house prices going up or down?

Average house price growth across all of the major house price indices was recorded as 8.1% over the last 12 months. More recent data shows rather volatile monthly figures, however as usual not a lot can be read into this, other than to suggest growth is currently between 0% and 5% following buyer caution under a barrage of negative press headlines. We expect good opportunities to arise over the next few months, as vendors needing to move and developers looking to achieve sales quickly with buyer incentives, continues to provide excellent prices. This will start to show in the house price indices, and better prices mean better rental yields for investors with more potential for growth over the years to come.

Long-term view: – Which direction will property prices have gone in 10 to 15 years time?

Professional investors will generally take a medium to long-term view of the market, and reasonable predictions forecast good growth over this longer timeframe, making any short-term price wobbles irrelevant.

Are rents likely to go up?

According to recent RICS, ARLA and Paragon surveys, rents are already up. London rents are already at 15% and, as usual, this is likely to be preceding significant growth in the rest of the UK regions.

What fundamentals are driving rental growth?

First-time buyers have dropped from over 20% of the market to less than 10%. At the same time, homebuyers are buying in less volume but still at a greater rate than property coming on the market. This represents a substantial number of people switching from buying to renting and a disproportionate number of smaller households resulting from frustrated first-time buyers unable to get onto the ladder. This will lead to substantial growth in rents for flats and terraced property.

Is there an undersupply or an oversupply of property?

Government’s increasing targets for new housing indicate there is a massive undersupply of property in the UK. The talk of oversupply has referred mainly to rented flats in city centres. However, it is now becoming clear that this was a relatively small oversupply and agents in many cities and towns are reporting strong rental demand surges and a rapid reduction in rental accommodation available. Even city centre flats are recovering and rental demand is so far boding well for strong rental growth in the future.

Is population growth, fed significantly by immigration, likely to continue and hence support house prices and house price growth?

Government figures suggest the population will grow 4.4 million by 2014 - that represents an enormous extra demand for housing when there is already a shortage.

Should I be buying with all the bad news in the press?

Rents are rising and opportunities exists to use the current fearful market to your advantage, buying at better prices than has been possible for some years, from forced sellers (some developers and people who need to move house very quickly). Buying cheaply in a strong Rental Market will significantly enhance yields for buy-to-let investors and allow mortgage costs to be covered relatively easily and relatively quickly.

Professional investors in any market act against the crowd. This is the opportunity to think like a professional investor and buy at a time of market pessimism, with a 10 to 15 year plan. What is more, rents will pretty much cover your mortgage straightaway with strong returns already being reported.

Source:  Stuart Law, Chief Executive, Assetz.  13th December 2007