After nearly a decade over which prices have been strongly on the up, the UK’s property market has notably slowed over the past 12 months or so. Halifax reported this week that April saw a 3.1% drop in average prices on a country-wide basis. Over the last quarter, a more accurate gauge than any single month, prices edged down by 0.1% when compared to the previous 3 months. April’s slide was the most significant since 2010 and naturally prompted concerns it may mark the onset of a more sustained malaise for house prices.
The positive news is that doesn’t currently look likely. The overall UK economy is in reasonable shape with unemployment at its lowest level since 1975 and modest real wage growth having returned. However, Halifax data has now pointed to a drop in prices over the past 3 quarters, totalling 0.9%, since the market seemingly peaked early last autumn. What is usually a busy spring period for the market is proving to be muted in terms of transaction numbers and sales prices achieved. The RICS monthly survey of Chartered Surveyors also saw April sentiment at its gloomiest since late 2012.
Rising interest rates likely to push mortgages up in the medium term combined with sensitive consumer confidence, in part affected by Brexit uncertainty, looks likely to weigh on the property market in coming months. However, across the country prices are still forecast to remain flat or see modest increases. Regional disparity is more pronounced though and the cities of the Midlands and North are currently stronger than the property market in the South and South East, which has benefitted from the price growth over the past several years.
The overall picture appears to point to a slow, flat market in many parts of the UK, without any dramatic crash in prices in prospect. For property investors, that can mean opportunities as well as challenges. If you do own investment properties in the UK you may want to look for bargains. You may also want to sell. This could be either to lock in profits gained over the upwards march prices have been on until recently, with cash to be invested in other asset classes. Or, you might want to sell existing property to reinvest back into new investment properties, rebalancing or adjusting your portfolio.
Both buying and selling investment properties in a slow market is different to doing so in a growing, bustling market. If you’ve been in the property investment game long term and have already seen market downturns, you probably know how to handle a sluggish market. If you are a post-financial crisis landlord, you need to take a little more care.
A rising tide lifts all ships and sometimes the worst thing that can happen for less experienced investors is easy initial success resulting from hitting a sweet spot. This can provide a false sense of infallibility. That’s not to be alarmist but it is good to be aware that things are unlikely to be as easy in the property market over the next few years and a little more thought and strategy will be required. Let’s take a look at some steps investors buying and those selling can take to maximise their chances of success in a slightly moribund market environment.
Selling an Investment Property
Correct Pricing: when the market starts to slow, sellers usually take longer than buyers to figure it out. As the saying goes ‘hope is the last thing to die’. And so it often proves with sellers overpricing their property on the basis of market conditions that no longer exist. When canvassing offers from more than one estate agent to handle the sale many sellers make the mistake of opting for the company that provides the most aggressive estimate of achievable price.
Overpricing both contributes towards perpetuating a market slowdown by keeping transaction numbers down and can end up leading to achieving a lower price. Buyers will quickly spot if a property has been on the market for some time and will start to ‘lowball’ with their offers. If you get a handful of price estimates, the chances are those in the middle are the best bet. You will also often end up with a better final price if the marketed price attracts quick interest which can then be leveraged to create a sense of urgency and competition between potential buyers.
Strong Presentation and Marketing: selling a property for the best possible price is not fundamentally any different to any other product or service – image matters! When there are 5 buyers clamouring for every property, you might get away with not putting too much effort into how yours is presented for marketing and viewing purposes.
However, when things slow down you need to pull out the stops to present what you have in the best light possible. Investing in properly sprucing your property up and some high class professional photography for the marketing will pay off. That doesn’t mean spending a fortune but get the place looking like a show home and don’t try to cut corners by doing the images yourself with your phone. Unless you happen to be a great photographer!
Be Aware What Is Important to Modern Buyers: proximity to a supermarket or convenience store and friendly neighbours used list as the most important factors for buyers. However, times change. Ocado now exists and, let’s face it, as long as our neighbours are inoffensive, most of us are not popping around for a cuppa every other day anyway.
In the modern world, buyers focus on different qualities. Good broadband speed and mobile phone coverage now rank among the most sought after pluses to a property. Plenty of sockets are a selling point so add a few more! It won’t cost much and will make a positive impression. If your property is in an area that ranks well on Ofcom’s broadband and mobile coverage checker emphasise that in your marketing and sales pitch during viewings.
Buying an Investment Property
You Can Be Pickier: buying investment properties is like investing in the stock market – the best long term returns are always achieved if you can buy during a dip or slump. What’s happening now in the UK is almost certainly more of a dip than slump but it’s certainly a better time to buy than a year ago. Excluding prime London, rents are generally not down so getting a slightly better price will increase your rental return ratio to buying price compared to this time last year.
You also have a better chance of getting a more attractive rental property at a reasonable price without having to make so many compromises on factors such as location and layout. If, in the future, a real slump does hit, those are the properties that will remain tenanted and hold their value best. So be picky in your search.
Build a Relationship with Your Agent: soft skills are often overlooked when it comes to what makes a successful property investor but making the effort to build a personal rapport with your agent can yield results. If you respect their time and effort, and demonstrate that fact so they don’t fail to notice by telling them and making little gestures, they will enjoy working with you. This can ensure you are first in line to receive any information on new properties that come on the market, or a tip off the owner of a property that has been on the market for some time is now ready to accept a lower offer.
Make it Known You Are Looking to Buy: as well as potential investment properties that are officially on the market, there can be interesting options crop up if people know that you are buying. They may not have taken the steps to actively put their property on the market but if you make it know through social media networks you are looking to buy, or even flyer dropping in areas you are interested in, you could well be approached and given first option on properties the owners would consider selling. This approach might even save some money on real estate agency fees and can be a productive approach.
Get a Pre-Approved Mortgage in Place: avoiding potential delays in the mortgage approval process by getting pre-approved can give you a significant advantage in the eyes of sellers, and put you ahead of any potential competition. Getting finance in place that only needs a few ‘i’s dotted and ‘t’s crossed once you find the right property can prove invaluable.Risk Warning:
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.