A lot has changed in the world over the last few months.
The property market hasn’t escaped the shock of the pandemic and a lot of people are asking, is UK property still a good investment?
I’ve given this a lot of thought and here’s how I see things currently stacking up for existing or new property investors.
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The Current State of Affairs
On the one hand, the economy has been poleaxed by the pandemic and is recovering only falteringly.
Unemployment, whether real or hidden by furlough, is rocketing; incomes are being squeezed; consumer confidence is at a low ebb, and the ratio of house prices to earnings is high.
On the other hand, interest rates are low and will stay low for some time.
It’s a delicate scenario.
An Autumnal Impact
My view is that the moment of truth will come in the autumn.
Mortgage holidays will end at precisely the same moment as the government’s furlough scheme. This will be the first time when anyone can really begin to assess the collateral damage to people’s personal finances.
Employment and general sentiment play very important roles in shaping the housing market.
Given that the lockdown will have disproportionately affected the finances of younger workers, there will be plenty of would-be first-time buyers cooling their heels and renting, or living with their parents, for some time to come.
Its bound to be the case that more people will be interested in short-term flexibility, which is exactly what the rental market delivers.
Rising unemployment is toxic for any property market, and in a weak economy people tend to buy less homes.
This then means that demand for rental property increases relatively. However, the numbers of properties available to rent does not rise at the same time, so you end up with more demand than there is supply.
What Does This Mean for Property Investors?
In this scenario rents start to go up and hey presto, returns on investment properties start to do the same.
This could become very interesting for buy-to-let investors who, following a raft of tax and regulatory changes, have had their returns massively squeezed over the last few years.
I do, however, think that certain types of properties will be more vulnerable than others, for example:
- short lets
- student accommodation
- houses of multiple occupation (HMO)
But I do believe that investors with cash and a willingness to take risks will find bargains.
Market sentiment will be jittery, competition from other buyers will be less and the demand for rental property will be rising.
Which brings to my mind two age old sentiments:
- Investment is about balancing risk versus reward. A successful investor is one who manages to tip the balance in their favour.
- Fortune favours the brave.
Let’s watch this space!
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Last Updated: July 30th, 2021