Investors: Buy property now

Landlord Expert
By Landlord Expert January 25, 2010 10:36

I'd like to throw another house price indicator into the mix. Not because I think we don't have enough already! (Unemployment figures, base rates, supply and demand, economic growth, mortgage arrears, credit availability and so on and so on.) It's just because I've noticed it's not been discussed by readers in their emails to us, in the comments under our articles.

That is, till last week. A reader, (trying to get me off the fence) put it to me that, since property funds were by far the most popular at the end of 2009, does this mean smart investors are signalling it's time to buy a house?

Thing is, the majority of property funds in the UK are fuelled by commercial property, not residential. That means offices, shopping centres and so on. These sorts of funds can't be taken to reflect sentiment for residential property prices.

What do the real residential-property investors think?

The bulk of investors in residential property are buy to let landlords. These investors have indeed been showing signs of gaining confidence in recent months. Lending to landlords is continuing to increase in pound terms, up 10% in the third quarter of 2009 to more than £2bn. Loan numbers have risen to 24,000 over three months too, another increase of around 10%. These figures aren't massive, but the important bit is that they're rising again. We'll get the complete figures for 2009 in mid-February.

Those figures could easily be misleading

It's hard to know whether the majority of landlords are really convinced that now is a good time to buy, because there is so little credit available to them. This could be making the figures misleading.

As the available credit steadily rises, along with the number of mortgages on the market, more of us are able to get a mortgage - landlords included. Just as we've been buying more as credit has become available, so have landlords. However, until (and unless) credit is much more widely available, we won't know if it's just a small number of landlords doing all the extra buying.

Signs from other residential-property investors

Although most property funds are commercial, as I said earlier, there are at least a few dozen small residential funds and, in the second half of 2009, they've been taking more investor money. At least one reported it was taking in £1m a day.

What's more, fund providers are responding to demand by opening more residential property funds. I've seen eight UK residential property funds open in the second half of 2009. This may not seem a lot, but considering how few existing funds there are, combined with the unattractive (for investors) regulatory environment for these funds, and the often unfavourable tax situation with them, eight is high.

Investors could be over-egging it

This means it's possible that this demand for new funds could be reflecting a fair bit of desperation from investors.

When investors are very excited about something it's usually too late to get in. Indeed, the last time I read a report about a leap in new residential property funds was around 2006/7, just before the crash. The question is whether we've got to this stage yet. Answers on a postcard (or down below in our comments section).

I think people are just uncertain

As usual, it's one more sign that can be taken either way in the whole house-prices debate. Increasing numbers of investors are backing the property market, just as they correctly did throughout the early to mid-2000s - but even more were backing it in mid-2007. What stage in the cycle are we in, now?

Considering all the opinion polls that have come out in the last six months have been quite neutral, it seems that very few homebuyers, homesellers or economists expect a big move in prices this year. Personally, I think for many this neutrality reflects a pause whilst people wait for more direction, not a certainty that prices will be stagnant. Everyone's waiting for something to happen, good or bad. Maybe it's a solid piece of data showing good growth or maybe it's another banking calamity.

People don't know how sustainable the economic recovery will be. Most people didn't know how sustainable economic growth was going to be before the crash either, but the events of the past two years have made people think a little more cautiously. That's why, I think, people consider property to be fairly valued now, but expect to heavily change that view dramatically, one way or the other, in the next twelve months.

Give us something more solid!

I understand this isn't the sort of commentary you want to read, which is why so many people in the media have a stab at forecasting.

What I can say with confidence is that the risk of buying now for those of you who want to simply own your own home is relatively small. That is, it's relatively small compared to those who want to get into buy to let. This is simply because a buy-to-let landlord has to worry about whether in these difficult times he can get enough rent, as well as worry if he'll make enough profit in ten years to sell up.

As a homebuyer, your goals are more simple and long-term. Whether prices rise or fall right after you buy is at best a secondary consideration for most people; one to boast about with your friends perhaps (or to keep quiet about). That's not so important - although it can affect how much you pay for your mortgage.

What's important is that you can afford the repayments, you think what you're paying is worth it for your lovely new home, and you've got a plan in case of worsening circumstances (such as higher interest rates or loss of income). When you've paid off your home, you'll have no more rental payments to pay. That's a certainty, not a prediction, and it's worth paying for.


Landlord Expert
By Landlord Expert January 25, 2010 10:36


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