Bad Time to Buy Property as an Investment? By Lawrenson of LettingFocus

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A weird thing happened last year.
An old pal of mine from Merseyside bought a house right next door to the place where we used to live on the Wirral when I was just a small kid. This next door house was identical to our one.
He paid about half a million for it. My father paid £30,000 for ours back in 1971.
Not a bad increase in price over time I guess.

Don’t Compare Oranges with Bananas
But when comparing property prices over time don’t forget that properties need to be maintained which costs money.
And, of course, the quality of what’s in today’s properties is so much better than what one would have put up with in the 1970s.
Bleeding obvious I know - but often forgotten by many commentators.
So when comparing property prices today with what they were some years ago and saying “Gosh, how much things have gone up” we must always remember that we are not exactly comparing like with like because maintaining and improving property costs real money.

Inflationary Hedge
But all the same, those kind of figures really does show how property is a great inflationary hedge.
Money left in the stock market over the period 1971 - 2009 would have done pretty well too.
An investor friend of mine - Rochdale Andy - noted that he rather fancied gold at the moment but then added “Unfortunately I can’t leverage up to 70% buying gold.”
And nor can you borrow money to buy shares either.
Just go to your bank and see if they will loan you money to buy shares without any asset to back it and see how far you get.
And I imagine that, even if it were possible to borrow money to buy gold or shares, it would not normally be tax deductible either in the same way as investing in let property is .
And neither would gold produce a rental income.
These factors, for me mean that the right type of let property will beat shares most of the time.

Is It a Good Time to Buy Now?
It’s better to buy now than it was in 2007 right? House prices are down so it has to be better to buy now. Isn’t it?
Well, I bought 2 places in 2007 and where I have invested prices are down between 5 and 10% on 2 years ago.
Should I not have waited? Should I not have seen what Sir Fred and the other banking eejats were up to and held on through the credit crunch to buy now.
I disagree. At least not for one who needed mortgage financing to complete the purchase.
Why?
Well, back then I could get an 85% loan to value at a buy to let mortgage rate of just .69% above base rate FOR LIFE for a mortgage fee of about £500.
Now, the best loan to value is a measly 75%, the best buy to let mortgage rates are a whopping 4.5% above base for just 3 years followed by 2% above base for the rest of time.
And the fee is a whopping 2.5%, )which would have been £2,500 on that particular property.)
I’ve done the maths and because of the effect of the cost of money, it still looks like 2007 was a better time to buy. That said, I think 2009 will also prove good in the long run too partly because I think inflation will come roaring back within 2-3 years.
But I will look in more detail at why I think today is a good time to buy to let in a forthcoming blog.
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ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
We are LettingFocus.com - the property experts.
I’m, David Lawrenson, the author of “Successful Property Letting” which for the last 3 years has been the UK’s top selling property book.
What’s unique about LettingFocus is that I offer independent unbiased
property seminars covering property investment and letting because unlike most people in the buy to let and property “advice” business I am not linked to a property company, developer, agent or bridging loan financier.
I can tell you where to buy (which areas), what type of property to buy, when to buy, how to buy property at a low price, how to make sure you get tenants who are going to pay the rent and how to manage a rental property to make £s at my one to one consulting service.
I can also comment on “No Money Down” Schemes and “Buying Below Market Value” methods too.
I can answer all your questions on letting property too because I have been a landlord and property investor for over 25 years.
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HOUSE PRICES IN LONDON AND THE SOUTH EAST HAVE FURTHER TO FALL SAYS DAVID LAWRENSON OF LETTINGFOCUS

November 2009.
Sometimes what you see with your own eyes can be more useful than all the economic news you read. Here is an example.
So busy was the city centre of the Welsh capital 3 weeks ago that I commented on a recent blog post about how no one seemed to have bothered to tell the people of Cardiff that a big recession was all around them.
Meanwhile, back at home my weekly car trip across London seems to get faster all the time and getting a seat at a restaurant in Canary Wharf is now simplicity itself.
Confusing eh? But this difference is really not surprising at all because the recession (and any associated fall in house prices) is hitting much harder in London and surrounding areas than anywhere else in the country.

REPORT CONFIRMS ITS GRIM DOWN SOUTH EAST
Now we have hard evidence.
A recent report from the Local Government Association (LGA) said that workers in London and the South East are likely to be worst hit by the recession, with one in 12 jobs being cut in the next 18 months.
London suffers because of its dependence on the financial sector, where banks like Citi are shedding thousands of jobs. Many construction firms are also based in and around the London area.
According to the report, parts of the South West and East Anglia, with big farming communities, will only see one in 30 jobs disappear by 2010 with Plymouth and Cambridge the places least likely to see job losses. Stoke-on-Trent and the areas round Newcastle are also predicted to not do too bad either.
To some extent this is a repeat of the last big slowdown as London’s performance in previous recessions was worse than other parts of the country. As a result, London saw the biggest house price falls in the period from 1989-1994.

LONDON HOUSE PRICES HAVE FURTHER TO FALL
I have been amazed at how asking prices for property in London have been so resilient so far– and it is only now that I am seeing realistic pricing coming through from vendors, as reality, in the shape of redundance notices begins to strike.
This trend to more realistic pricing was also picked up by the website, Rightmove’s recent analysis too. (As you may know from other blogs I have not bought in the capital for 5 years as I think most house prices are way too high.)
For these reasons, I think London residential property prices will possibly drop another 8-10% from here whereas other areas may be close to the bottom already.
Areas that will also hold up well are places where there is a large proportion of people working for the government.
Whereas private sector workers (most of whose pensions are linked directly to the stock market) should make sure they are seated down before they open their next pension statement, government workers whose pensions are paid by future taxpayers won’t need to worry.
And neither will they be as worried about losing their jobs as the government will not want to make the dole figures any worse.

USE YOUR LOCAL LIBRARY
I stumbled across two magazine at my local library which should make good occasional reading for anyone looking to buy into areas that will do well in the future. One is “Regeneration & Renewal” at http://www.regen.net/. The other is “Modern Railways” which is packed with news on the latest new railway building. Use both to tell you where to buy to take advantage of coming improvements to infrastrucuure – a big factor in house price appreciation once the credit crunch eases.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson of LettingFocus.com - the landlord and property letting advice experts.
I’m the author of “Successful Property Letting” which for the last 3 years has been the UK’s top selling property title - Buy Successful Property Letting - How to Make Money in Buy to Let.
The new edition is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on sale and rent back.
I’m an expert freelance property writer, property speaker and I run this well known property blog
I contribute to newspapers and a host of property websites, write a number of columns in the press and I provide general property letting advice for anyone looking to buy property for themselves or to let out.
In my work as a consultant I help private individuals with any aspect of buying property or buy to let. What’s unique about lettingfocus.com is that we are independent property investment advisors because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from any of these sources.
We simply give one to one unbiased advice and are often asked to evaluate other property investments.
In my corporate consulting role, I also advise banks, building societies, housing associations and web portals with their buy to let and property products and services.
You can read more of my blog & find details of my networking, advice and property training programme at my website.Copyright: David Lawrenson 2008. This blog is updated once a week.
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Base rate tracker buy to let mortgages by Letting Focus.

Well it has been quite a week hasn’t it?
There have been some good things - some coordinated government intervention in the banks, a review of bank executives’ pay (much to Digby Jones’s dismay) and at last, some of the top guys at a bank that caused the mess look set to get their marching orders. Bye bye Mr. Fred Goodwin of RBS.
The 0.5 per cent cut in interest rates is also great news for me, many other landlords and anyone with any mortgage tied to the BOE base rate. It goes a tiny way to making up for huge losses suffered on the casino otherwise known as the stock market.

GET A BANK OF ENGLAND BASE RATE TRACKER
I have always been a fan of Bank of England base rate trackers – in fact all my mortgages are on BOE base rate trackers- and I have long advised that people should steer clear of anything that tracks anything that their lender can change at a moments notice, such as the lenders’ standard variable rate.
I’m lucky enough to have had the foresight to have gone one better and taken out some lifetime buy to let mortgage trackers at 0.69% and 0.89% above BOE base rate, which now looks like great business. I just wish I had done the same for the whole of my portfolio of mortgages, as the majority of my buy to let mortgage loans will need to be remortgaged in mid 2009.
So, my advice is if you are on a mortgage which has just gone down as a result of the 0.5 per cent cut in the base rate, use the money wisely and think about stashing away the savings you will get as a result of the cut in base rates, especially if any of your loans have to be remortgaged next year.
If you have loans reaching the end of their discount period and coming up for remortgage, you will need access to lots of extra cash to meet the very high arrangement fees for the current crop of mortgages now on offer - that's if there are any deals worth going for. If not, you may as well stay on your mortgage companies default mortgage rate as it may be better than the new stuff on offer.
These high arrangement fees, which are typically anywhere from 1.5 to 3 per cent, will be around for as long as the crunch is with us - which could be for another 2 or 3 years.

LONDON HOUSE PRICES FALLING
On a bright note, finally, at last here in London, I am seeing vendors starting to drop asking prices on property.
As you may know from my seminars and public speaking events, I have not bought in the capital for 5 years because I have long thought that prices are way too high here even when one is buying “Below Market Value,”whatever market value is!
Well, at last some sense is starting to appear and I’m seeing some real markdowns in house prices. See our article on Why the credit crunch makes it easier to buy property below market value for more on this,
However, I fully expect house prices to fall for at least another 9 months as the effects of the credit crunch start to roll over into what’s called the “real economy” – which means anything and anyone outside the hallowed halls of the pin stripe and braces brigade in the city.

CHOOSE TENANTS WITH CARE
Also, in this difficult economic environment, you’ll need to pick your tenants with extra care. So, make sure you or your agent reference checks tenants even more carefully than before.
And if you have a choice, pick people who look well placed to stay in their jobs or who are bright enough to get another one if the axe falls on their current employment.
And treat good existing tenants well. If tenants are paying the rent it should go without saying that they should be treated fairly and with respect.
And if they cannot pay the rent, don’t be dumb and make them stay the course until the end of any fixed term of a tenancy agreement. If they are struggling to pay, this will not do them or you any good at all. So, cut your losses and let them leave early.

CHECK YOUR CREDIT SCORE
And if you have not already done, so you should check your credit record and credit file and make sure what information the agencies hold on you is correct.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson of LettingFocus.com - the property investment experts.
I’m the author of “Successful Property Letting - How to Make Money in Buy to Let” which for the last 3 years has been the UK’s top selling property title - Buy Successful Property Letting - How to Make Money in Buy to Let. The new edition is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on buying property with no money down.
I’m an expert freelance property journalist, property speaker and a well known buy to let blogger
I contribute to newspapers and a host of property websites, write a number of columns in the press and I provide general property investment training & advice
In my work as a consultant I help private individuals with any aspect of property investing or buy to let. What’s unique about lettingfocus.com is that we are independent property mentors because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from any of these sources.
We simply give one to one unbiased advice and are often asked to evaluate other property investments.
In my corportate consulting role, I also advise banks, building societies, housing associations and web portals with their buy to let and property products and services.
You can read more of my blog & find details of my networking, advice and property training programme at my website.Copyright: David Lawrenson 2008. This blog is updated once a week. WANT TO BE KEPT UPDATED WITH OUR LATEST BLOGS?
It’s easy.
Go to the bottom of this post, and click on “Link to this post”
Our home blog page should then open & you should then see my smiling profile. Then page all the way down and on the bottom right it will say “Site feed” - click there and away you go.
You then just copy the link that comes up into your News Reader or News Aggregator. Even a non techie like me managed to do all this.
Please note if you have a website & are thinking of reproducing material here - that’s fine but we DO require the full links shown in each blog to be included including also the links in the section “ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON” Please contact us via the Contact US button at our main site http://www.lettingfocus.com/ if you have any queries about this.

Why Are London Rents Going Up by Letting Focus

All this talk of a credit crunch and housing market slowdown has meant many first time buyers are staying on the sidelines and continuing to rent.
This is normal behaviour and one that I explain in the first chapter of “Successful Property Letting – How to Make Money in Buy to Let”
I have already observed on this blog that these first time buyers may be mistaken in some areas, particularly in London, where I don’t expect house prices to fall much at all, though there will be a slight increase in opportunities to buy below market value from desperate sellers.
I now see that Savills has reported annual growth of 8 per cent in rent levels in the more up market areas of London while Cluttons, puts the figures at 15 per cent .

More Demand from Tenants
Anecdotal evidence from my estate agent friends at the more down market end of the London rental market, indicates the same thing is happening. Indeed, most London agents are now seeing an increasing business from prospective tenants - and landlords & are putting up rents in line with this increased demand.
This is good news for landlords whose rental yields are now low (though that is of course, itself a function of rising house prices and rents that have failed to grow as fast)
It is bad news for tenants!
In London, expect more rental growth and steadyish house prices for the next year.

ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson, the author of “Successful Property Letting” - the UK’s top selling property and buy to let book for the last 3 years.
I have been a landlord and property investor myself for over 25 years.
At LettingFocus we offer independent unbiased seminars for buy to let investors and landlords as well as one to one advice covering all aspects of buy to let, finding and managing tenants and investing in property.
The difference with me is that as I am not linked to a property company, developer, estate agency or bridging loan provider I am able to give unbiased independent advice on where to buy (which areas), what type of property to buy, when to buy and how to buy property at a low price. I can also explain how to reduce the risk of getting a bad tenant.

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Copyright: David Lawrenson 2007. This blog is updated at least twice a week