Whether you voted Remain or Leave, there’s no doubt Brexit has had an impact on our politics and economy. We know that both those things usually affect the property market, so what lies ahead for landlords?
What’s happened so far?
A change to the future, such as voting to leave Europe can mean people are concerned about what will happen next. When this happens, it can cause people to be concerned about the effect on the economy and how that will impact on them, which can mean they initially hold off from making big financial decisions, such as buying a home.
According to the GfK consumer confidence barometer which measures consumer confidence on a monthly basis: ‘six in 10 (people) expect the general economic situation to worsen in the next 12 months. Only 20 percent of consumers expect it to improve, down from 27 percent in June.’
The same research shows that there are big regional differences in confidence levels: ‘In the north of England, confidence has dropped 19 points and in Scotland it has fallen 11 points. In the south (including London), there has been a 2-point drop.1
Now this drop in confidence may last a while, or just be a short term blip as people realise that although we are pulling out of Europe, we won’t be doing so for at least the next two years. However, in the short term we do expect the number of people looking to buy property to reduce. Of course, if the number of sellers also drops, then this might not have any impact on property price inflation, but in some areas it may initially cause a mis-match if supply outstrips demand which can slow house price rises.
But the reality is that a slowdown in the property market isn’t solely the Brexit vote’s fault. In the first quarter of the year, there was a big rush by investors to buy before the extra 3% stamp duty kicked in on 1st April. Because of that and affordability issues in areas like London and the South, property price inflation had started to cool before the referendum and was already predicted to slow down in the second half of the year.
And the interesting thing about a market slowdown from an investor’s and landlord’s perspective is that it can be a great time to make some money from property.
The property market is generally strong
At Your Move we invest in expert market analysis to make sure you’re always properly informed about what’s really happening in the market. We put together reports using our own data and analysis from Acadata, a research-based consultancy practice, which includes experts from the Cambridge Centre for Housing and Planning Research.
Our latest report shows that even if there is a slowdown in the market in the short term, it’s not likely to lead to house price falls, only a slowdown in rises.
Highlights from our latest index:
Property price inflation was already slowing prior to the Brexit vote, but was still 6% higher than in 2015.
Property sales in June were 13% lower than last year, but higher than May’s sales
May’s house price averages in the capital were down 1.4% month on month, but still up 7.3% year on year
The East of England region, led by Luton and Thurrock, showed above average annual growth of 21% and 16% year on year
Adrian Gill, director of Your Move, says: “Brexit is going to have a wide range of influences on the market, both positive and negative. How they will all balance out is far from clear, but they are going to increasingly dominate the market in the months ahead.”
To read more of these reports, visit the Your Move Blog.
Why a slowdown can be good news for landlord investors
Market wobbles can actually be quite helpful from an investment perspective, for two reasons. Firstly, if enough buyers hold off, people who need to sell might be ‘spooked’ into reducing their prices or accepting lower offers, if they’re worried prices might drop further. And if you can buy at a discount from one of these sellers and rent the property out at the same level of rent you would currently, your yield will go up.
If you buy a property for £150,000, which generates annual rent of £7,500, the gross yield is 5% (£7,500/£150,000).
However, if you can secure the property for £135,000 and retain the annual rent of £7,500, you boost your yield to 5.5%.
Secondly, if people aren’t buying, they are either living at home or rent a property. That means the demand for your Buy to Let should go up, as long as it’s in good condition. The private rented sector has doubled in size since 2002, and the latest data from the English Housing Survey shows that 19% of households are now rented. A big part of this rise happened following the credit crunch in 2007/8, when a lot of people rented, rather than bought – and have continued to do so.2
The only downside to a slowdown in the property market is that it could, in the short term, hold back the capital growth of your existing portfolio. However, due to a long term shortage of homes, it’s likely capital growth will bounce back and in the meantime, if you manage to get hold of more properties at a discount, you should be able to balance and even improve your returns. And don’t forget that if interest rates fall, your monthly mortgage costs could go down as well!
Overall, as long as you have a strong portfolio and your Buy to Let properties generate a good return, market slowdowns can actually be a good opportunity to make some money.
Come and talk to us if you have any questions about your rental properties, or would like to speak to a Buy to Let mortgage advisor. Find your local branch here.