Buy to let investors advised: Grab the bull-market by the horns

Landlord Expert
By Landlord Expert October 17, 2012 10:01

Rising unemployment, government spending cuts, falling house prices, mortgage meltdown, doom, gloom... will the last person to leave the UK please turn out the lights?

We’ve been saturated with bad economic news from morning to night since 2007, and for the first few years the headlines were absolutely correct. But what about now?

The common perception is that unemployment is still rising and will continue that way, but here are the facts;

  • From April 2010 to June 2012, there were 634,000 more people in work, over 500,000 of these outside London
  • The total number of people claiming the main out-of-work benefits is now 100,000 lower than in May 2010
  • Unemployment numbers settled in late 2011 and have steadily fallen throughout 2012
  • In the most recent quarter alone, the number of people in employment rose by 201,000 (May-July 2012)

It doesn’t suit our current national pastime of blanket pessimism, but whisper it, unemployment is falling right across the country.

Common perception also says that house prices outside of London are a disaster, it’s cool dinner party talk right now to say there’s another 10-20 per cent fall in regional prices waiting in the wings, before the smart money finally steps in. London is indeed our greatest, largest and richest city, an outstanding metropolis with countless attractions and economic activity, but prices here have already surged since the March 2009 low, so investors have missed the best part of the rally. What about the rest of the country?

  • After a sharp four-year fall, house prices outside of London have stabilised since mid-2011, confounding expert commentators consistently predicting further falls.
  • The house price to earnings ratio in the North is now 3.2 x average earnings, the lowest it’s been since early 2003. This compares to a whopping 6.2 x average earnings in London.
  • Mortgage payments in the North stand at 26 per cent of mean take-home income, the lowest and most affordable figure in over 10 years. This compares to 49 per cent in London, meaning that even when fully adjusting for its higher average income, London has become radically less affordable than property in the Midlands and North.
  • Rental yields are 30-50 per cent higher in the Midlands and North, meaning buy-to-let investors earn far greater income when investing here.
  • Despite London’s boom since 2009, inflation-adjusted house prices for the UK as a whole are now below their 40-year trend. This means that non-London house prices are already significantly below their long-run average values.

So it doesn’t sound trendy or glamorous, but house prices in the Midlands and North aren’t about to collapse. In fact these areas are already such good value relative to local earnings that they’re almost certain to outperform those in London over the coming years. 

With a stubbornly slow economic recovery, where will the price rises come from?  In addition to already being tremendous value, there’s five years worth of pent-up demand from buyers completely frozen out by high deposit requirements since 2007. There are hundreds of thousands of potential buyers who cannot wait to buy property once the mortgage market begins to thaw. 

On that note, buy-to-let mortgage lending is up 18 per cent year on year, an early sign of increasing confidence from both investors and lenders?

House building figures in the UK have fallen steadily for the last 40 years and the figures in 2011 marked an 80-year low, but the population here is consistently moving ever higher. Less supply and more demand for housing means that bear markets cannot last forever.

One last thing, as Sir Winston Churchill remarked, ‘The further backward you look, the further forward you shall see.’ Looking back in history, house price corrections in the last three major UK downturns all lasted four years. From 1952-1956, from 1971-1975 and most recently from 1989-1993. History tells us that four years is the length of time it takes for the UK housing market to heal after a bubble bursts, and so far this time around, history is once again repeating.

Regional property markets in my view will never be materially cheaper than they are now, and 2012 will mark the slow beginning of a long and powerful new bull market. Buy-to-let investors have an incredible opportunity to beat the crowd, to act now and prosper from the UK’s upcoming revival.

By Oliver Barber, co-founder of Kingsbridge & Carter, the property investment specialist

Landlord Expert
By Landlord Expert October 17, 2012 10:01

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