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Expert insight: Brexit property investment myths busted

on Tuesday, 25 June 2019. Posted in Analysis

If Brexit has made you think this isn’t the time to invest in property, Steve Bolton of Platinum Property Partners wants you to reconsider

Expert insight: Brexit property investment myths busted

Since the birth of the internet and 24-hour news there has been a rich pool of information at our fingertips. Whatever we want to know and whenever we want to know it, we can simply type a question into a search engine and find an abundance of answers. But is everything you see and hear in the media the complete truth?

News outlets are often the go-to media for someone on the look-out for the truth. After all, certainty is one of the six human needs. What's good to eat one day is bad for you the next, what you should and shouldn't do during pregnancy changes monthly and we always seem to be on the verge of some sort of crisis.

The UK population, unlike our European counterparts, invests so much in terms of time and money into property that we are also extremely conscious of what the media reports on this topic. What many of us tend to forget is that, like most businesses, the media is in the business of selling. And what sells? Bad or fake news.

Because of this, we at Platinum Property Partners (PPP), the UK’s leading property investment franchise, look at two of the most common Brexit property investments myths recently circling in the media and uncover some cold hard facts about why investing in property remains a great decision for many, deal or no deal. 

(1) House prices will fall significantly

The Bank of England warned in 2018 that house prices could fall by up to 30% if we find ourselves facing a no-deal Brexit. This is almost double the biggest drop experienced after the financial crisis, which stood at 17%. 

As a result, people are sitting on their hands waiting for some kind of windfall saving instead of buying now, which has slowed down property market activity. First-time buyers, home movers and new or inexperienced property investors are concerned that if they buy now, they’ll miss out on a cheaper deal in a few months. 

Other property market experts, however, predict only small falls at 5% in house prices or even a 1% to 4% rise over the next year. 

The truth is that, since the referendum, house price growth has fallen on average, not actual house prices when you look at the year-on-year figures released by the Office for National Statistics. This slowdown has been predominantly led by diminishing house price growth in the south and east of England. All predictions are of course based on an average for the UK, and actual data across the country proves that things can differ greatly between regions, towns and even neighbouring roads. 

If you’re a first-time buyer, then you could hang around to see if your dream house goes down in price, but you risk missing out. If you’re a home mover, then any price drops are relative – if the house you want to buy goes down in price, the property you’re selling is likely to as well. 

However, if you’re considering investing in residential buy-to-let property, whether for the first time or to grow an existing portfolio, think about the rental income you could be losing out on. The higher the rental income potential of the buy-to-let model, the less important saving a few thousand pounds on the purchase cost becomes.

(2) The buy-to-let boom is over

There has been a flurry of tax and regulatory changes impacting the private rented sector since 2015 which has resulted in almost 4,000 buy-to-let properties being sold by landlords each month, according to the Ministry of Housing, Communities and Local Government

As a result, buy-to-let lending has decreased significantly. Figures from the trade body, UK Finance suggest that the number of new buy-to-let mortgages approved in 2018 was less that 70,000 compared to 183,000 in 2007. 

It is reported that rental yields are also low and that Brexit will only dampen tenant demand, especially from EU immigrants. 

For single-tenancy buy-to-let landlords, it is true that margins are being squeezed and, in many instances, rental income barely covers costs. Such landlords are therefore leaving the market. But for high-income-producing models like the HMOs (houses in multiple occupation) return on investment remains 15% on average and there is actually less tenant mobility – meaning they are staying put for longer. 

In addition, if you can pass the stringent stress tests, which HMOs can, attractive mortgage rates are being launched by lenders all the time in a bid to win new business. More products are also coming on the market for limited company buy-to-let mortgages

This article comes courtesy of Steve Bolton, founder of Platinum Property Partners a specialist property investment franchise, who have created a HMO e-Guide to help people understand what they are, how they work and their potential to create an income four times the amount of standard buy-to-lets. Download it here

Strategic Media Partners