The Property Options Buy to Let Market Overview
Our regular Bristol and UK property reports are written by economist Chris Worthington, who is a regular speaker at our PIMs.
In recent editions of the market overview I have been reluctant to deal with what is probably the key issue for many BTL investors – the impact of the Covid – 19 related economic downturn on house prices. I delayed dealing with that because of the uncertainties arising from the considerable variance in economic forecasts and forecasts of house prices.
However I will address this important issue this month.
A recent article in the Times Bricks and Mortar property supplement was not optimistic, stating that “there appears to be a disconnect between the dire economic data and the robust housing market figures – but the two are inextricably linked. However the economic data has been suppressed by the government’s job retention scheme and the housing market has been buoyed by a temporary cut in stamp duty. The most pressing concern is what happens to unemployment over the next few months.”
The Bank of England’s latest forecast is that unemployment could rise to about 7.5% by the end of the year.
So far so gloomy. However the September edition (published in October) of the UK House Price Index produced by property analyst company Hometrack, in association with Zoopla, presented a slightly more optimistic, although somewhat mixed, picture.
Here are the main findings:
- UK average house price growth has hit a two and a half year high at 3%
- There are 140,000 more sales in the system than usual creating pressure on lenders, valuers and conveyancers
- The flow of demand is starting to moderate and is returning to pre Covid – 19 levels although it is still 40% higher than a year ago
- The supply of homes for sale is 18% higher than this time last year and up to 38% higher in London
- The recession and rising unemployment is starting to impact on activity primarily in areas with less wealthy demographics.
The report concludes that
“levels of housing market activity are slowly becoming less frantic as we approach the year end. The stamp duty deadline will focus the minds of committed movers in the near term and make for a strong first quarter of sales completions in 2021. The outlook for the rest of 2021 is uncertain.”
How should BTL investors deal with question of the risk associated with a new investment in the last quarter of 2020 and the first quarter of 2021?
This can obviously be mitigated by making offers well below the asking price – but also remember that most BTL investors invest for the long term.
If house prices fall the losses are likely to be covered by gains in future years.
Please note this was written before the announcement about the vaccine becoming available. An update about the impact of that on the housing market will be in the next edition of the market overview.
Our Next Property Meeting
We will all be discussing the latest position on the property market in Bristol and across the UK in the light of Covid-19 at our next PIM.
We’ll be arranging this when it is safe and practical to do so.
Meanwhile, stay safe.