28 September 2018
2019 will certainly be an interesting year in property.
Brexit is looming and speculation about what will happen next is a hot topic. The consequences of a deal, or no-deal, are not yet fully known, nor are they likely to be any clearer for several months yet. But a possible price crash, or, at the very least, a short term slump in property prices, is a popular expectation, and some savvy investors are gearing up to buy while they can.
Recent changes in regulations surrounding BTL property have led to some landlords fleeing the market, but many other property investors are feeling optimistic about the future. Today, they are holding on to their cash reserves, and waiting.
Of course, nobody can predict the future. And without the knowledge of what exactly a Brexit deal will look like, it is difficult to foresee what will follow.
On the one hand, several prominent and knowledgeable figures believe that a property price crash is almost inevitable. Mark Carney, governor of the Bank of England, has predicted that a no-deal situation could lead to a sharp rise in mortgage interest rates, and a possible slump of up to 35% in property prices. In this case, over-stretched homeowners and investors could find themselves struggling to pay the mortgage, which may force sales and lead to a buyers’ market.
Professional property investors have always been in a strong position because of their ability to move fast on a purchase without relying on a mortgage. Sellers who find themselves in need of a quick sale can work with a cash buyer to complete in days or weeks rather than months, without the hassle of multiple viewings, estate agents fees, mortgage hold-ups and broken chains.
If Carney’s predictions prove to be true then cash buyers could indeed find themselves in a position to purchase property at a below-market-value discounted price.
However, most cash buyers rely on strategies which involve ‘recycling’ their investment cash. They buy to flip for a profit, or refinance with a mortgage as soon as they are able. A sustained rise in interest rates might make mortgages less attractive (or difficult to secure) in the short term and hasty buyers might find that they have tied up their financial resources for longer than anticipated, with no way of cashing out in the short term without accepting a much smaller profit margin that planned.
In short, over-confident and novice investors could find themselves in the same position as the sellers they bought from.
Experienced and savvy investors will always look at the whole picture before tying up their money, and focus on long term planning rather than promises of fast and risky cash. Whatever changes Brexit brings, there will almost inevitably be some who manage to bag themselves a bargain while others miss the boat.
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