The Opportunity Ahead

By Gordon Campbell

13th April 2020

The Opportunity Ahead

Last week we shared our thoughts on a detailed document What Might Covid-19 Mean For The Housing Market? Click here to read it.

Further to that we wanted to give our thoughts on The Opportunity Ahead.

The global property market is facing unprecedented challenges as it battles against the consequences of social policies aimed at reducing COVID-19 infections.

In the UK and Glasgow, physical viewings and surveys have been prohibited, banks have tightened mortgage lending criteria, tenant evictions have been banned and many transactions have been put on hold. For the moment.

That will change and will start to resume to normal.

When Her Majesty’s UK Government’s isolation policies will end, and the UK property market return to normal, is anyone’s guess… three weeks, or soon are dates that have been (hesitantly) mentioned by politicians and epidemiology experts, but it’s clear that no one really knows.

It should be noted the UK Government has unprecedented levels of financial support to businesses, employees, charities and support services like NHS (National Health Service) to maintain jobs, businesses and the social fabric of our society.

It has been highly commended and the benefits of that will be seen once we are through the virus situation.

A few forecasters have been prepared to nail their colours to the mast to date, though Capital Economics has suggested that a short sharp recession is currently the worst-case scenario.

The emergency cut in the bank base rate, economic stimulus from government spending pledges and the willingness of mortgage lenders to take a considerate view of short-term mortgage arrears, are designed to mitigate the impact.

The UK has recently come through another period of uncertainty recently due to Brexit and the general election.

This dampened the UK property market for a short time.

The result created significant pent-up demand (something we were only too aware of), and the recovery that rapidly began to take hold in January and February of this year – the so-called “Boris Bounce” – highlighted that some investors were better prepared than others.

From this and our 32 years combined experience and rather than trying to guess when the market might recover, we have assembled some ‘top tips’ to help make sure you are well positioned for the bounce post COVID-19

Surround yourself with the right people

First and foremost, make sure you have your partnering team ready and primarily your sourcing agent.

Alliance Property Group is supremely confident in meeting and providing this in our one stop solution to our clients, and holding your hand at every stage.

Sourcing Agent:

A strong sourcing agent that is compliant, knows their market intimately, has robust systems, procedures and communication.

A proven track record of knowledge, success and reputation/ testimonials and you can trust and rely on and operates in a moral, ethical and transparent manner.

Mortgage Broker:

The sourcing agent and you should have a mortgage broker who is highly experienced in BTL, HMO and refinancing is key.

Solicitor:

A responsive and effective solicitor is key. A slow solicitor can kill deals. Time and time again, buyers and sellers appoint conveyancers because they’re the family’s solicitor for their wills or other affairs, but any landlord needs to be business-minded and pick their solicitors based on their responsiveness and aptitude at executing property deals.

Our properties on average take 4 weeks to complete. The legal system in Scotland is supplier and quicker than any other part of the UK.

Letting Agent:

In Scotland and Glasgow, letting agents have to be licenced to operate as a business by the Scottish government, (housing is a devolved power in Scotland from the rest of the UK ie the Scottish Executive have their own powers to manage, coordinate and implement housing policy in Scotland separate to the rest of the UK).

This policy on housing ensures they are highly regulated, complainant, trained and monies are protected.

This does not apply to any other part of the UK!

Good letting agents are invaluable and will ensure your property is safe, secure and compliant.

Refurbishment Teams:

We prefer and use refurbishment teams who are multi trades and provide a whole of service offering.

Make sure they are insured, the trades have the relevant certificates of training and conformity especially gas and electrical.

Having strong communication, open, honest and dedicated team is paramount.

Cash will (still) be King

Mortgage lenders are likely to be quite conservative initially post COVID-19, so adjust your expectations to a 60% LTV if you require refinancing.

Many lenders have retreated to this level in recent days and we think it’s prudent to assume that this will be a new market level until a recovery has become more widely established, by which point you’d have probably missed out on the best deals.

Cash buyers will be in the driving seat, as there’s expected to be a big backlog of bank surveying work once isolation measures are reduced, which will slow down mortgaged buyers and make them less attractive to sellers.

They’re unlikely to be very busy right now so it’s a good time to get some free advice!

And remember, any initial cash purchase in Glasgow can be refinanced immediately. Click Here to see our support document on Finance for International Investors in Glasgow.

 De-risk your investment

Nobody knows what the next crisis might be, maybe a second outbreak of COVID-19 once social distancing measures are eased, so a good way to de-risk any purchase by considering and implementing the above points mentioned.

This is why at Alliance we don’t sell every property we get offered, (Click Here to see our support document How Does Alliance Property Group Get Properties) we spend a huge amount of time doing due diligence on every property we decide to sell and before it is issued to investors, ensuring it is always the right property, right price, right location, right demand for sale and any eventual resale.

Tenancy Demand

Demand for renting will still be high, possibly higher than ever if you assume that household savings will have been eroded by an economic down-turn and as people focus on repairing their finances.

Currently around 21% of households are privately rented.

Prior to the outbreak of COVID-19 this was expected to reach 25% by 2025.

We expect that this level could now be reached sooner than that!

Yields

Rents have historically been more resilient than house prices (they’re less volatile given that they’re typically contractual for periods of 12 months or more and are slower to adjust).

Although no two crises are the same, it’s interesting to note that whilst property values fell sharply in 2008, rental levels were generally maintained, yields began looking rather more attractive, and then came the swift bounce back on capital values.

We expect something similar could happen during and post COVID-19, resulting in initial yields expanding in the short- to medium-term.

House price growth

Negative in the short-term, but following COVID-19 the effect of continued loose monetary policy and ultra-low interest rates is likely to result in asset price inflation in the medium- to long-term, similar to how it did between 2009-2017 in the years following the credit crunch.

We’d expect to see more motivated sellers during and in the immediate aftermath post COVID-19, which could result in some excellent buying opportunities for investors who are ready to move quickly.

Keep your finger on the pulse

You don’t want to miss the best opportunities, so you need to be prepared and positioned to move quickly once the market starts to turn.

A good example of this was in January: Rightmove recorded a 7.2% increase in traffic (an all-time high of 152 million visits), Nationwide Building Society reported a 1.9% increase in house prices (the fastest annual rate in 14-months), and here at Alliance Property Group we had the busiest Q1 ever with strong supply and demand of the off market, below market and high yield and cash flow properties we sell.

Whilst the stock markets will no doubt go through a downturn in the short-term, post COVID-19 we believe that the fundamentals will continue to be strong and the outlook for investing in rental property will be even more attractive.

As was mentioned in our document What Might Covid-19 Mean For The Housing Market? , we are absolutely confident in the short, medium and long term price stability and growth and the continued increase in demand for rental properties.

If you buy the right property, in the right place, for the right strategy and with the right people around you,

Property will continue to be the world’s best class asset to invest in.

Finally, we have a very strong supply pipeline of properties scheduled to be sending out once we have a clearer indication when lockdown will be lifted.

As always, we are working very hard in the background to make all of this happen and you won’t be disappointed what we have got scheduled to come through.

Watch this space!