Buy To Let House Prices


Neil Simpson is a former Personal Finance Journalist of the Year and the author of the Buy-to-Let Investor column in Financial Mail on Sunday. He is a keen property investor and writes about buy-to-let online as well as for a variety of publications including Mail on Sunday Property and City AM.

House prices are back on the front pages this week – and at first glance the stories don’t make pleasant reading.

The Times probably spoiled a few commutes on Monday morning with the headline ‘House price gloom as the wealthy turn away’. And with several price surveys due later in the week there is set to be a lot more negativity to follow.

But as ever my advice to buy-to-let investors is simple. Read it all, pay attention to it, but don’t necessarily think you need to act upon it.

Here’s why.

Most of the latest stories are based on a tiny sector of the property market that won’t necessarily have much effect on the buy-to-let sector. And any influence that does leak into our world might turn out to be positive.

The clue is in that Times headline. The super-wealthy cash buyers are starting to hold back. City bonuses are set to be dramatically lower at the end of the year – some 60 per cent lower according to some estimates. So the annual flood of money into property is going to seem like a ripple, not a wave. Bad news for prices, possibly. But good news for landlords who stay in the market. Our own properties should stay tenanted if we don’t have as many Johnny-come-lately city boys to compete with then. Especially because the cash buyers who sink bonus money in bricks and mortar every year don’t have huge costs to cover each month. That’s why lettings agents tell me they can often afford to undercut the rest of us on rents and scoop up the best of the tenants.

Take some of the bonus-buyers out of the market and I reckon the Northern Rock crisis could end up doing the rest of us property investors a favour. The papers have been full of stories about the tightening of supply for mortgages in recent months. What will help existing investors is a tightening of supply of new properties for rent. That’s going to help yields. And if the Bank of England cuts interest rates by a quarter point in the first few months of 2008 then our balance sheets could get another boost.

Prices

Of course none of this is going to be much consolation if prices fall fast because the bonus boys stay away this winter. It is true that the big buyers in London and the south east have skewed the market for some time now. Soaring prices in prime post codes have hidden a general flattening of values elsewhere. If the froth at the top disappears a flattening market could turn into a falling market – with all the ‘houses in crisis’ headlines you would expect. If this affects sentiment – and creates a panic – then we really could have a crisis on our hands.

Take a close look at the property catalogues at most auctions this autumn and it’s clear that a worrying number of investors are already in trouble. Landlords dramatically outnumber former owner-occupiers on many lists. People who have borrowed too much and bought where supply is too great can’t wait for 2008 to ride out the storm. A lot of people are already hurting in the property market.

But anyone who can hold their nerve should try and do so. If the changes to capital gains tax come into force next spring (and I must admit I’ve got my doubts) then buy-to-let could become an even more tax-efficient investment. And if population and household growth continue to go up (which you have to take as a given) then buy-to-let remains a vital part of the market.

We’re expecting a lot more survey results on prices, rents, yields, selling times and repossessions this week. They’ll each give their own snapshot on how the market is performing and how it’s likely to move. We’ll review them all on lml.co.uk next Monday.