Is This The Right Time To Add To Property Portfolios?

Many landlords are reputed to be taking time to review their portfolios and raise capital in order to take advantage of lower property prices. This follows in the wake of forecasts by property experts that the lifting of the Covid-19 lockdown will result in a short-term fall in house prices.

Financial and housing experts are broadly in agreement that a temporary dip in property prices will occur in all sectors of the housing market as a result of the economic impact of the coronavirus.

As Richard Donnell, Research Director of property platform Zoopla says, history has shown that house prices are likely to fall when the economy contracts as a consequence of falling output.

Zoopla estimates that around £82bn worth of property transactions, which equates to 400,000 home sales, are currently frozen. The firm believes that the number of new sales agreed is running at around 10pc of the total achieved in March, in effect the same volume as would be expected to be seen in late December.

While there is general agreement among experts that prices will fall, the amount by which they are predicted to fall varies widely and is impossible to forecast accurately.

PRS demand outstrips supply

Savills argues that the current economic position is not comparable to that of 2008 and will, therefore, have quite a different outcome. Lucian Cook, Head of Research at Savills, explains that most people’s ability to postpone plans combined with the inability to complete transactions means that the medium-term outlook now is significantly different from twelve years ago.

The company predicts that although 2020 may see a notable fall in house prices, 2021 will see a recovery of around 5pc.

In fact, the market is beginning to show a decline already, as the latest research from Rightmove indicates that the average price of property coming to market last month dipped by 0.2pc to £311,950. Whereas in April 2019, UK house prices increased by 2.1pc.

In stark contrast, Zoopla’s research shows that demand for rental properties has already bounced back increasing by 30pc in the two weeks to April 14, despite an initial 57pc fall in rental demand due to the coronavirus.

Rental demand continues to outstrip supply by a wide margin, as it is probable that the economic impact of the pandemic will reduce the previously predicted increase in rental income for 2020.

Four factors that support increasing portfolios

There are a variety of factors at play which may mean this is a beneficial time for landlords to consider making additions to their portfolios.

First, house price growth has stalled and is widely predicted to reverse into decline. But the fall is expected to be short-term, which means there will be a limited window of opportunity during which to pick up a property that is good value.

Second, rents are expected to increase only modestly this year but by 5pc in 2021, which means the yield growth will be higher than any return that could be made on savings accounts.

Third, mortgage rates are ultra-competitive at the moment and so are unlikely to fall further any time soon.

Last but not least, many potential house buyers will be deterred from purchasing currently, due to a range of factors such as a drop in income, social movement restrictions and, therefore, health considerations.

The ensuing lack of competition among buyers will put the determined investor in a stronger position than normal, especially if the vendor has been attempting to sell for some time.

Consequently, fewer people will be enquiring about mortgages during the lockdown, so a canny landlord with good advice from a reputable broker should be able to steer a way through the market to release equity from the portfolio and be in a position to purchase when the lockdown is lifted.

If the landlord has existing mortgages, he should first of all find out from a broker whether he can remortgage and release equity from his properties. It is worth remembering that it may be cheaper to pay the Early Redemption Charges (ERCs) and move to a new product than continue with a fixed-term mortgage at a higher rate.

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