If you’re getting a bonus, then bricks and mortar are still best
IT MIGHT not be the most popular thing to say right now, but people are going to get bonuses this year. In the years preceding 2008, the bonus season meant one thing in London – a boost to the buy-to-let property market as bankers sunk their money into bricks and mortar. The world has changed since the boom years, but if you are in line for a pay-check soon, is buy-to-let still a sensible option?
According to a new survey carried out by the Property Investor Show and OPP Live, yes it is. A nationwide survey of 93 sales agents said that they had seen an increase in demand for properties in the past six months.
Furthermore, there are a lot of bargains out there. The survey says that 50.4 per cent of properties are currently selling for up to 10 per cent below asking price. (Although, as they are less keen to point out, over 25 per cent of properties that sold went for asking price or above.)
Figures from estate agent Winkworth say that in London rents fell 10 and 12 per cent for flats and houses respectively between October 2008 and June 2009, but that since then rents have begun to level out, and have even increased in areas such as Harringay, Edgware and Clerkenwell. The fall has been greater for houses than flats. Winkworth also says that rental stock levels (for both flats and houses) have decreased by almost 10 per cent since January this year. As supply falls and demand rises, prices have stabilised, and the agent believes that they will soon bottom out.
TAKE THE LONG VIEW
That can mean it’s a good time to buy, says James Davis of property rental website upad.co.uk. He acknowledges that it’s tempting to wait until the market has bottomed out but says that this is impossible to call and anyway, as the average length of time that somebody owns a buy-to-let property is 12 years, a few months and a few thousand pounds will make little difference in the long-term.
Davis adds that this is the “optimal time” to buy: a combination of low prices and rents that have increased by 5 per cent in the past quarter means that you could get more return on your investment now than you would have during the boom, when prices were higher. As he also points out, some banks are lending for buy-to-let (he recommends Bank of Ireland and Mortgage Works). That said, “cash is king”: while a year ago a bank might have asked for a 10-15 per cent deposit, the figure now will probably be closer to 20 to 30 per cent.
He says there are “health hazards” to be aware of. For example, valuers are being overly pessimistic at the moment, as they had their fingers burned during the last recession, so if they come in at less than the price you are willing to pay, then be armed with data – for example, how much similar properties have sold for recently.
New builds can offer bargains, he says, but be careful. Many people who paid deposits then found it impossible to persuade banks to lend them the rest of the money and have had to bail out. Developers are desperate to get some return on their investment, and some will sell for low prices. “Don’t be seduced by flashy show-homes, though, and do your due diligence.”
Davis says that you should avoid East London. There has been much talk about post-Olympic regeneration, but it is unclear whether this will happen, and at the moment there are far too many flats, and not enough amenities to make the area attractive.
Howard Elston, Associate Director at Aylesford International, says that given the uncertainty in the market, it is best to stick to prime central London property. “If you can get the finance together for a two or three-bedroom property in a garden square in Chelsea, Knightsbridge or Belgravia then you are always going to be able to rent it out.” Good properties in the suburbs are also a guaranteed bet, but anywhere else is a risk, he says.
That said, there are some good tracker mortgages still available, and prices are attractive. If you are one of the lucky ones, then property is still a goer.
Property Investor Show & OPP Live will run from 22-24 October 2009 at London Excel. For more information visit www.propertyinvestor.co.uk/london.