Is now the time to step into London property?
In the current market climate, it’s easy to get caught up in the emotional push/pull of media headlines. I recently discussed why property investors should never believe all they read in the newspaper and looked at the way that the media sensationalise stories.
In my experience, the worst investments made by property investors who let emotions rule their better judgement. However, when there is widespread scaremongering and fear of a market collapse – often promoted by those sensational headlines – some of the best property deals can be negotiated.
In this post, I look at five reasons why I believe property investors can strike some excellent bargains in the London property market today. Be warned, though − the opportunity may not last long.
1. Brexit has opened the bargain basement
When the Global Financial Crisis and ensuing Great Recession hit us in 2007/2008, markets were rocked. Newspaper headlines screamed the end of the world. The housing market was going to hell in a handcart. Caught up in the emotional mayhem, property investors and home buyers took a big step backwards. Investors, afraid that their property investments would collapse in value, rushed to sell at any price.
Consequently, prices fell. I made some of my best investments in that period. The time between the unnecessary panic and the realisation that most if not all of the property fundamentals that had made investing in property such a great trade before remained. In other words, the calamitous change that had occurred was no more than an excuse to send property prices tumbling temporarily.
In my view, Brexit has created a similar opportunity. If you invest now in areas and developments that benefit from the right fundamentals, then you could pick up a great long-term investment that performs better than the average.
The short-term effect of Brexit isn’t the only reason that investors in London property could be buying at bargain prices today.
2. The Bank of England just cut interest rates and mortgages are getting cheaper
Earlier in the year, Mark Carney, the Bank of England Governor, said that interest rates would probably rise later in 2016. To protect against the worst effects of Brexit, he has reversed this decision spectacularly. Interest rates are now at record lows, and he has said that banks have no excuse not to pass on the interest rate cut to mortgage customers. When the BoE Governor makes such a public statement, it’s not a request: it’s instruction.
Mortgages just got cheaper, and that means investors’ cash flow just turned a little more positive. Combine a cheaper mortgage with a lower property price (because the sellers are Brexit panicking), and long-term buy-to-let investors will benefit from a double positive.
3. The government wants the private rental market to grow
For all its puff and wind about the need to provide social housing and increase the size of the public housing stock, the fact remains that this government and those before it have encouraged the private rental market to grow. Private buy-to-let landlords mean there is no need for government to use limited finances to build new homes.
In 1985, only 9% of households rented from private landlords. Today that figure is 22% and rising. The percentage renting from the public sector is almost the direct opposite: in 1985, 30% of households rented from local authorities or other public organisations. Today that percentage has fallen to 9%. (Source: thisismoney.co.uk)
Many tenants prefer to rent from a private landlord. They benefit from a landlord who cares about their tenant, not some faceless person at the end of a phone who couldn’t care less and has three bosses stopping them from doing the decent thing.
4. Property prices will benefit from infrastructure and regeneration
Crossrail and High Speed 2 are revolutionising London’s property markets. New developments in previously under-loved suburbs are now in vogue and in reach of London’s nightspots and employment opportunities.
Do your London property research, and you’ll find some gems for investment.
5. Property is an excellent long-term investment
I recently asked, “When will London house prices fall?” In that article, I examined supply and demand, government policy, and banks’ needs (and desires) to lend. All are factors that underpin London’s property market. These are the macroeconomic issues that make the property market such a good long-term investment. When you combine these factors with your targeted research, the argument to invest in London property at bargain prices becomes compelling.
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