Garrington Monthly Market Review – November 2010

It would be churlish not to mention the most reported news event of the month – the royal engagement.  As Prince William and Kate Middleton plan their future together, it is interesting that their married life will begin in a rented farmhouse in North Wales.  Whilst the financial affairs of the future King and his fiancée are very different from the general populous, it is a reminder that property as an investment can be a shrewd move for those with access to cash.

A number of contributing factors are shifting the momentum away from owner occupier status towards the rental option in some sections of the market.  Firstly there is the predicament facing first time buyers.  The recent student demonstrations against the Government’s plan to raise tuition fees highlight the pressure faced by students from increasing debt thereby preventing graduates (without third-party assistance) from entering the property market and trapping them in rented accommodation.  And then of course those that have the means to raise a deposit are faced with limited options on mortgages.  Halifax, Britain’s biggest lender has recently reported that it is to raise its loan rates from January 2011.  On top of this, first time buyer concessions are going to be withdrawn next year.  These factors will make it increasingly tricky to gain a foothold on the property ladder, and force many people to stay in rented accommodation.

Secondly, whilst uncertainty remains about house prices – Nationwide has said that property prices are set to decline in the near future, Rightmove statistics show asking prices were reduced by 3.2% in November and RICS has reported that in October new instructions declined and new enquiries remained negative – many of those selling are choosing to rent to make them “cash buyers”, resulting in a dearth of quality rental properties.  Finally, with the withdrawal of £1.9bn of funding from 13 planned Private Finance Initiative housing projects, the housing stock level will fall below demand.

Whilst bringing mixed fortunes for different stakeholders, this undoubtedly creates opportunities  for landlords, and is not something to be ignored when considering how to invest money in property.  So what to buy and where?  The UK has probably one of the most liberalised private renting sectors in Europe and residential rents have historically performed better than house prices.  According to Knight Frank rents in London’s prime residential market have risen 16% since their recessionary low in June 2009 and Savills reports that “nationally, mainstream rents have risen by 5.8% since January to the end of September 2010”.

The Association of Residential Letting Agents (ARLA) says that “gross returns can be as high as 12-14%, but this drops by up to half for properties at the very top of the scale of values, although the right high priced properties can show greater capital appreciation. This applies to properties let in London, the Home Counties, the Midlands or the North whether they are urban or rural”. With national coverage, Garrington has Associates ideally located to help search for suitable properties in these areas.  Buying property for income, whether short or long-term, is a business proposition therefore location and demographics are crucial.  Investors should build up a diverse portfolio containing small units and multi-units thereby mitigating risk.

With Christmas lights adorning every high street, market activity is noticeably slower.  However there are still people who want or need to sell and this characteristically quieter period can throw up some good opportunities to achieve discounts on asking prices.

For further information on Garrington contact +44 (0)20 7099 2773 or email info@garrington.co.uk or visit www.garrington.co.uk

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