November 22, 2017 jim1

Is the Buy to Let property market going to crash

OK, the number of mortgage being authorised is at the lowest level for nine months, the financial results from estate agents look pretty scary, particularly those with a concentration on the London property market and of course there is a long queue of commentators lining up to tell us that property prices will fall , or will crash  completely, over the next 10 years, etc. etc.

If you listened to these drumbeats you would start looking for any form of investment that does not involve property. As for Buy to Let, well after the impact of the tax changes and if prices are going to fall then it’s a sure fire way to lose money. Surely this is the logical conclusion.

In my view no, it is the wrong conclusion. The same media outlets will tell a different story if you turn over the page, this story comments that house prices have surprisingly continued to rise. Even in the London area. So how do we find ourselves reading about such contradictory and confusing stories, all based on solid facts.

It started with a Chancellor who decided to increase his tax take on the premise his actions were about making property more affordable and available for everyone. The premise I applaud, as making housing more available and affordable has to be good for house buyers and in the long term the housing market. The actions he took tended to hit specific sections of the Buy to Let market, the smaller investor with one or two properties and the higher priced London market.

The results were as expected, a slowdown in the London market overall with the impact going from top to bottom of the price range. A flood of Buy to Let purchases to beat the dates on Tax changes followed by a slump in activity. House prices in London stagnating and falling slightly with the major impact being at the top end. A switch of activity to the out of London property markets.

This was intended to lead to a surge in available housing for first time buyers and therefore a surge in first time purchases which would strengthen as house prices fell.

Well we have seen an increase in first time purchases which is good news. We have not seen though the scale of increase that might have been hoped for. The reason, simply put, is that there are too few houses on the market. Estate agents are suffering not only due to a slowdown in activity, they are also suffering due to a shortage of stock. A lack of supply has meant that house prices even in the face of reduced demand have and will continue to rise. Until wage inflation starts to close the wages to property price gap for first time buyers then demand may stay at a reduced level, which of course means that demand for rental property will continue to strengthen particularly as population growth continues at its current rate. On the supply side no actions taken by the Chancellor are going to result in the size of increase in housing supply that would be needed to stagnate prices. So estate agents may continue to struggle but house prices will continue to rise. Which will lead in London to empty property as landlords in some cases mothball property waiting for the London top end market to re ignite, which it will.

For the Buy to Let market well the focus will be outside of London for some time to come and as statistics become comparable with last years changes no doubt we will see moderate growth resume. In fact I know of one case where an prospective Buy to Let purchaser has found themselves being gazumped. So the market is still alive and it will be growing.

All of which for the reasons above means that in my opinion we will not see a property price crash, rather we will see continued demand for rental property, continued house price increases and eventually a strengthening of demand in the Buy to Let market.

I of course have a vested interest in this market, so this is good news, however whats your thoughts on the confusing signals from the Property market.