Beware of the Broad Brush

22nd September 2018

Currently, there are many doom and gloom stories regarding where the property market is going to go in the next few years.  There is talk the market could drop by as much as 30%, and that a further drop in Sterling, caused by the instability of Brexit, would mean interest rates will need to rise.  This would cause havoc in the property market, as we have been having an over extended honeymoon with low rates.

However, who is actually benefitting from these rates? If you were to apply for a standard BTL mortgage, the rates you will be getting will not have much correlation with the base rate.  Those who are benefiting from these low rates are those who were fortunate to go on base rate trackers prior to the credit crunch.

So, how does one invest in a market which is likely to go down further?  Or, does one simply sit back and wait until there’s blood on the street; and then re-enter?  That’s certainly one option.

When the mass of buyers have been scared off from the market, you will find properties which are on the market because they need to sell.  They do not have the luxury of choice.  We have covered these types of sellers in earlier articles, the 3 Ds, the deceased, divorced and distressed.

At the moment, we are focusing on the deceased; or more accurately those who administer the deceased person’s estate.  This can provide a lucrative source of business, and until someone can find a way to stop death, there will always be a supply from this sector.

I believe there are three targets one should focus on in this market.  One, is the 3 Ds.  Another, is to purchase in areas which are set to rise heavily over the next 5 – 7 years.  Coming into these locations in this market will ensure you’re buying below market value, and will benefit from the uplift due to occur over the medium to long term.  These will be bread and butter areas, where the average property price is below the £300K threshold.

The other obvious focus should be on yield.  If you can work a property by adding value, to give you a 10% yield, who cares which way the market goes?  Your money is coming in every month; there is no speculation required as to where the market will go in the future.

People like simple statistics.  To say the market is going to drop 30% is too broad a brush to paint the property market with.  For example, a £10m home could drop to £6m, fuelled by a divorce – and I have actually come across such a situation.  And a small property near a Crossrail station, could go up from £250K to £275K.  The former drop would swallow the small gain made by the smaller property, and skew the statistics.  This is how averages work.

There are some areas which are so desirable, that as soon as a property comes up it is pounced on.  The liquidity in these locations is very low.  Will these patches be affected in the same way?  I think not.  Property demand varies, according to locality and sector.  I suspect properties below £300K, which are priced at entry level for first time buyers, will be less affected.  This is because, they are satisfying a basic human need.  A need for shelter.

Suresh Vagjiani

Suresh Vagjiani
Suresh Vagjiani
Articles: 819