Whose crystal ball should people believe?

The last twelve months have been a roller coaster for landlords on all fronts. Properties have dropped in value from anywhere from 20 to 50 percent plus, mortgage rates have gone through the roof at 8 percent at the top end and lenders are interrogating potential clients about every aspect of their financial histories before they will lend. If anyone in 2007 had predicted the market being affected this much – including; the likes of well known lenders going into administration and banks being rescued by the government – they would have probably been escorted away in a straight jacket.

We all envisaged that the property market and the lending along with the borrowing of money couldn’t have continued – but to this extent? At the time of writing the Bank of England has just made the shock announcement that it’s cut the rate to 3 percent. So what does 2009 hold for buy-to-let investors?

There are many people with opinions for 2009 and beyond; it is down to you to decide whose crystal ball to believe. My opinion is that those who are going to benefit are the landlords who have grown their portfolios carefully and have sat on some money as a rainy day fund while taking mortgages out on their properties or new investors with lots of money to reinvest from other sources.

There are going to be landlords who will either struggle or not be able to take advantage of the possible benefits within the next 12 months. Those who took out mortgages and when they refinanced spent all of the money on other properties or a lifestyle will find it tough going, as will landlords who didn’t buy carefully i.e. bought properties at over inflated prices or bought at the top of the market and their mortgage is more than their rent.

So what are the 
opportunities?
It is a buyers market but the question which everyone is asking is ‘When should I buy?’ The aim of buying at the right point is when the property market is just about to hit the bottom and that is what is stirring up many discussions. Buy too late and you are on the band wagon with everyone else and the opportunity 
is missed.

So when will the property market hit the bottom? Some said Christmas, some said just after, some are predicting it won’t be until the end of 2009. The reality is that it’s all relative. The opportunities are there – the goal posts have just moved.

Buying an investment property now can not only help with the cash flow on other properties but also result in good cash flow generally and good capital growth potential for the future.

So it doesn’t really matter if you buy now and the property prices drop a little more, you will still have a property with a good rental yield. And of course in the longer term you could benefit from good capital growth too.

2007/2008 Property analysis
-                                       2007      2008
Purchase price              £140,000    £98,000 (30 percent drop)
Deposit required            £21,000 (15 percent)    £24,500 (25 percent)
Mortgage                       £119,000             £73,500
Rent received                £600 pcm      £600 pcm
Rental yield                  5.1 percent      7.3 percent

*figures correct at time of writing 10th November 2008

Lynsey Sweales  
For more information contact: The Money Centre (UK) PLC Registered Office: Aspiration House Iceni Court, Norwich International Business Park, Norwich, Norfolk, UK, NR6 6BB or call freephone 0800 374 611 or email enquiries@themoneycentre.net or visit www.themoneycentre.co.uk