Investing in property has long been seen as a sure bet when considering where you might expect to see year on year growth. Not only does it potentially bring cashflow, it also can benefit from long term capital appreciation. Throughout the UK we have witnessed these trends over last few decades and even the 2008 credit crunch did very little to destabilise the ‘property juggernaut.’ However, have recent events and market forces led the once infallible investment strategy to falter?
According to a Morgan Stanley report, there could potentially be a slump in house prices of 8% in 2018, with lending to fall by up to a third. With the stamp duty changes in 2016 biting, as well as the PRA lending guidelines tightening up lending criteria, this certainly could be the case. The new, more stringent stress tests and re-classification of what a portfolio landlord is, has certainly put scrutiny on how much an investor can borrow and how much leverage can be used when investing. London saw its first house price fall since 2009 in 2017, with the average house value (£472k) decreasing by circa £5k (Homes & Property Newsletter) and perhaps this is a consequence of the changes. Coupled with the uncertainty which still surrounds Brexit, it is difficult to predict whether we are heading for another dip or this being just a wobble. There is definitely an argument for the former.
Despite, these negative statistics property investment remains a leveraged investment and the increase in lending options has seen liquidity flood into the market. We did see Bank of England rate rises in 2017 but the increase in competition between lenders has kept margins down. Furthermore, The Mail on Sunday have commented that a rate rise in the near future is unlikely and this has been driven by a downturn in consumer services at the start of the year. Perhaps this is the reason for the surge in property lending at the end of last year which City AM have recently highlighted. According to the latest figures from Cass Business School, new commercial property lending overall reached £44.5bn for the whole year, equalling figures for the previous year. So there is definitely a case that the increase in liquidity in the market has offset the reduction in borrowing leverage and surely this can only be seen as a positive for the property investor. More responsible lending from an ever increasing number of providers means a wider choice for investors with a protective framework trying to prevent catastrophic events.
So if the property investment outlook isn’t as doom and gloom as some are making out what are statistics telling us about where people are seeking to gain an advantage? It is evident that many investors are diversifying their operating regions with many of the larger cities, such as Birmingham, Manchester and Edinburgh witnessing good growth. As Thomas Fisher, economist at PWC suggests, "We broadly expect current market conditions to continue, projecting UK-wide house price inflation to be around four per cent in 2018.” Furthermore, Shawbrook Bank have highlighted that it is not only the geographical area that people are altering but also the asset class. Even though single dwelling houses remained the most sought after property type, flat purchases have risen in popularity increasing from 20% to 31% between 2016 and 2017. So it is apparent that investors are not necessarily sticking to traditional trends but are instead looking to diversify.
With so many market forces influencing the property investment market in 2018 it is important that investors remain cautious and seek the right guidance. However, figures and expert opinions all point towards diversification and keeping your options open. There are more choices than ever before, change is happening on a consistent basis. As Charles Darwin said, “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”