“The intelligent investor needs to be patient, do their homework, wait for the right property to hit the market, and act quickly when something suitable becomes available”
Cash buyers from overseas tend to snap up Prime Central London (PCL) residential property in no time. But since April foreign property buyers have not been able to physically view fancy Mayfair apartments or any other UK housing.
Even with a weak pound, international buyers are avoiding the opportunity to buy at a discount in the current market, and they are conspicuous by their absence. Prices have fallen by 17% in Prime Central London since the summer of 2015, while the equivalent decline in Outer London was 13%.
Some would say that residential house prices have looked over-inflated for years and should have collapsed after the financial crisis in 2008. The fiscal stimulus unleashed and cutting interest rates almost to near-zero triggered the current boom.
UK housing market has so far defied the pandemic – despite the lack of buyers and renters from overseas has hit the London sales and lettings markets in a big way – with average prices hitting record highs. Figures from the Nationwide Building Society this month showed house prices rising at their fastest pace in 16 years. This is somewhat at odds with the wider economic turmoil; the UK is still facing in these early stages of rebuilding from the most severe contraction in economic activity on record.
Four factors driving the speedy recovery:
During the lockdown, nearly 150,000 house purchases that would otherwise have taken place were put on hold between March and June. While this will to some extent have been matched by pent-up supply, data from RICS suggests that buyers have returned to the market more quickly than sellers, boosting prices
Companies have borrowed £58bn in emergency loans backed by the government, according to figures released by the Treasury. Coronavirus Job Retention Scheme has been instrumental in supporting incomes and therefore demand during the crisis. Companies have taken almost £40bn under to cover the wages of furloughed workers. In mid-August 9.6 million people were furloughed under the scheme, equating to nearly a third of the total number of people in employment in the UK.
Alongside a further £13.4bn to help self-employed workers, the total for the various business support schemes has risen to well above £100bn indirect monetary easing to individuals and companies, creating a lot of short-term excess liquidity.
The chancellor raised the threshold at which buyers pay stamp duty from £125,000 to £500,000 in July. It will remain in place until March 31. It’s estimated that July’s stamp duty cut will bring about a 1.2% increase in average prices and a 6.0% rise in the number of transactions compared with what otherwise might have happened.
Average earnings data shows that low-income workers – particularly in the gig economy – have had their incomes much more badly affected by the coronavirus crisis than many of the more comfortably off workers, at least so far. As a result of this, housing activity in the summer months is likely to have been skewed towards higher-value properties, with so much interest in suburban and rural living recently, distorting some of the data.
Is this set to continue or is the increase an anomaly, driven by emergency policy measures designed to give the market a boost?
This is a natural concern many investors have, and it’s not completely unwarranted. Sure, over the course of time, property generally increases, but what if your timing is slightly off? Buying a property just before a crash is a genuine worry, and it’s difficult, if not entirely impossible, to predict and avoid.
Our research suggests that prices could start to fall significantly towards the end of the year and the first half of 2021. Despite this, there will likely be a spike as the stamp duty reduction comes to an end. The 2% stamp duty surcharge being introduced for overseas buyers next April could also force buyers in the fourth quarter of this year.
We believe that national average house prices could be double digits lower in 2021 than in 2020. Declines are more marked in London than anywhere else in the UK, which underpins our belief that there is more scope for price rises in London.
That being said, there is still one thing you can do to lessen the risk: buy cheaply. Finding a bargain is essential if you want to mitigate potential market swings in the short term, and it can help you stay in business while others fail around you.
If you can negotiate a deal to purchase your buy-to-let investment at 10% below market value, you’ll be giving yourself a 10% cushion against market fluctuations at the same time. It’s so obvious it warrants a ‘Duh!’, yet so many first-time landlords pay over the odds on their property investment. Don’t follow their lead.
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