Landlords in Basingstoke should be cautious before investing in a Falling Property Market
Property prices continue to fall in Basingstoke and nationally as many landlords are bracing themselves for further falls. Predictions from leading commentators predict falls this year of anywhere between 10-15%.
However, despite these falls, serious investors know that landlords who keep their nerve are likely to be the ones that are going to prosper in the longer term.
Landlords that remember as far back as the last property crash in the early 90's will not be surprised by that. Some lucky landlords who had the foresight to purchase a London flat for say £50,000 in the 1992's chilly market, according to the HBOS House Price Calculator would have a property worth £161,325 even with the falls in 2008. That is a fantastic 222% gain in 16 years. Rents were much smaller, but the Bank of England base rate was a staggering 10% then. Those landlords who were sensible enough to have taken out a repayment mortgage had seen their investment property rise in value dramatically would have been well on the way to paying off their buy-to-let mortgage and still have a valuable income producing asset.
In current times, caution should be exercised as landlords and property investors who are eager to dive into the property market, may be thinking we have reached a similar situation as the early nineties. But, there are several reasons why the current market conditions differ from 90's slump.
Property values reflect several factors, namely economic prosperity and confidence. We are currently under going one of the biggest and sudden down turns experienced this century, comparisons are being made to the great depression of the late 1920’s. Economic confidence is taking a battering along with house prices in the Basingstoke area. Many potential purchasers are being put off buying, fearing further house price falls. This will subdue the demand for property and put a cap on house price rises for many years. Anyone who remembers the 90's slump will recall that prices in London did not start to recover until 1996 a full 7 years after the start of the housing down turn.
Secondly and more significantly, we are experiencing a global banking crisis for the first time in history. As most property investors realise the value of property is reliant on availability and price of credit. Meaning that even those potential purchasers of property who are confident enough to invest in new home will struggle to get finance as banks limit their lending. Restrictive lending with its high price means that a quick turnaround in property values is not going to happen in the way some economist predict. If we look at the 1990s for example banks lost money due to speculative lending on commercial property, they then restricted lending on residential property. It was not until the late nineties, with the initiatives to support the buy to let market were introduced did the whole market start to look rosier. This time around restrictions are likely to be tighter and last longer as the situation is more severe. In the early 90's we did not suffer the crisis of the UK banking system starting to fail halted only by government intervention by partial nationalisation of the banks.
But on a positive note there are great sums of money in low interest earning accounts, sooner or later the owners of this cash will re-enter the property market again.
The reality is that investing in property is a great way of making money for those investors who get it right. But those who invest, know that investment is all about timing. The timing for property investment may not be right now but it will come.
This article was researched and compiled by Steve Thomas for Activ Basingstoke. If you like to create an article for Activ Basingstoke please click here.
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