Property News of The Month
This month, there have been a number of new developments in the property world. As always, there is a mixture of positive and some slightly challenging – However, one key factor remains: Property continues to be the best investment route for many around the globe.
Properties Suffer from Down Valuations
After 2008, banks were told by the Bank of England to increase their stress testing on borrowers. Pre 2008, you could have walked into the bank and ‘self certified’ meaning you could pretty much borrow, within reason, what you like.
The banks were told to stress test up to an interest rate of variable rate + 3.00%, meaning that the interest rates could increase to 3.00% above the variable rate of the particular lender and borrowers would be able to fulfil their mortgage obligations.
Currently we are witnessing down valuations due to lenders becoming more cautious as a result of the high average house prices. In many cases, there have been lenders that are requesting clients put an additional 5-10% down to make up any down valuations and therefore protect their investment.
FW Recommends: We recommend when choosing a property, clients base their investments on putting in a 30-35% deposit. Alternatively, look to purchase off plan (2 years away) when we expect to see inflation fall and interest rates come down, making the mortgage market much more competitive.
House Prices Start to Slow
There has been a great deal of news and opinions discussing the slowed rate of house prices, and how they are cooling at ‘a faster rate than in the financial crisis’. With growth slowing from 12.8% to 7.8% between May and June, it appears the rush of the market from earlier in the year is starting to settle. However, this may not be the case.
FW Recommends: If we take a look at this time last year, the buy-to-let market was booming due to the stamp duty holiday, so there was a clear surge of sales going through at record house prices. From this, it’s important to note that there is always going to be a drop following this. However there are two points to note. The first is that the slight pull back is in line with every other year around these months. Also another important fact is that regardless of what growth was last year, the property market is still growing at an annual rate of 7.8% which is far higher than most other investment vehicles.
Rents are Rising
New data shows private rents in the UK have reached record highs, particularly in Manchester, soaring by more than 20%. According to Rightmove, the average advertised rent outside of London is nearly 12% higher than a year ago, while in the capital, rent prices have increased by over 15%.
FW Recommends: This makes it more attractive to investors as they are seeing rents continue to rise which makes the ROI more attractive. First time buyers also rent for longer as they simply can’t afford the deposit of their first house putting more pressure on the rental market which again is great for investors. Why not take advantage and take a look at our Manchester developments.
Fall in London Asking Prices
As interest rates take their toll, home sellers in London have ‘cut an average of £23,400 from their asking prices in August.’ Whilst London has experienced the biggest decline in the country, it is worth noting that this figure is actually based on an average property price of close to £700k.
FW Recommends: There is currently a lot of discussion around the recent decline in property prices. However, it is important to understand what is considered a decline. For example, if an agent had a property that was actually worth £200k they may have listed on Rightmove or Zoopla for £220k to ‘chance their luck’ so to speak. They then reduce it to the true market value which then registers on Rightmove as a 10% decline in house prices, which is not actually true. In addition, it is worth restating that many claim that there is a ‘£23,000 fall in house prices in London’, but when you dig deeper this is based on an average property price in London of close to £700k, so in fact the reality is only a 3.5% drop.
Overall, despite the news that is currently circulating, we’re remaining really positive when it comes to investing. Despite this month’s news, property remains a fantastic investment and a great way to reach your property goals, whether that’s reaching an early retirement, saving for your kids college funds, or simply earning more from your money.
For more information, or to discuss your property requirements, contact us now to speak with one of our brokers.