I would usually tell landlords & especially newbie landlords to prevent the perils to be caught by the allure of off-plan marketers selling sexy new city centre properties.
However, you will find circumstances when new residential properties sometimes represent ideal investments. They have certain obvious advantages to a landlord in that once the’snagging’issues are sorted out a new build property investment should prepare yourself to rent out immediately without the time consuming renovation work or voids period.
There’s no doubt, with the increase of interest rates and now the credit crunch the residential property market is slowing, particularly away from south-east and London. The most recent figures from the Financial Times reveal that prices actually fell generally in most elements of the united states between June and September; the exceptions being London and the South where prices have continued to rise but at a slowing rate. The biggest falls were experienced in the North & East Midlands with the latter registering a 2.5% fall in this 3 month period.
One of the biggest losers in a slowing market are your house builders. One only must witness the way share valuations of the major UK builders have fallen off a cliff in recent months. At the time of writing shares in Barratt Developments among the UK’s leading house builders are down over 50% from their year a lot of almost £13 and are actually hovering at only over £5. The marketplace obviously expects a significant slowdown.
This slump in activity could possibly represent a buying opportunity, particularly for sharp-eyed landlords. House builders become desperate to shift units when the housing market slows. This is because the developers have to guide their large overheads from dwindling sales revenue. The longer a development goes unsold the more their costs rise even when the development has been completed as your house builder continues to shell out money to pay interest on the loans and marketing costs. Santa Rosalia Lake & Life Resort This all means profit margins are continuously eroded the longer the development remains unsold. Developers are particularly vulnerable to a slow down when they are building apartment developments. This is because they should finish the complete development and are unable to phase construction and thereby match sales to production.
A Landlord’s Opportunity
A down turn in the residential market could therefore represent a genuine buying opportunity for landlords who’re ready to negotiate hard with housing developers for a deal. A developer is particularly receptive to a landlord’s advances where they simply have a few units remaining within a development and need to offer so that they may move off site to another location development. Landlord’s who can affect multiple purchases either independently or club together and then act as a syndicate are in particularly strong positions. If this all sound such as the investment clubs of old then it is. The difference is that by doing it themselves a landlord isn’t paying vulture introducer fees and charges and also that the landlord can ensure that they’re getting the properties at a real discount to industry price.
Small builders particularly vulnerable
Along with the bigger house builders, landlords should know about the numerous small local builders that have often chanced their arm and experienced property developing without being fully alert to the economics. These developers often do not have the financial back as much as survive a down turn. Therefore, if the property remains unsold for more than a month or two, these developers are under serious financial pressure. This means that a landlord is in a fantastic position to produce a seriously below market value offer. My physiotherapist was only remarking yesterday, as he was pummelling a vintage sports injury of mine, how he managed to pick up a new build really cheaply because the builder had over extended themselves and was desperate to sell.
New Builds & Buy-to-let Finance
One potential stumbling point for a landlord trying to pick up a new build residential investment bargain is being able to secure a buy-to-let mortgage on these properties. Some buy-to-let lenders have been spooked throughout the last year by the over supply and over valuation of some new build developments and have therefore began to use an extremely cautious lending policy in respect of those buy-to-let investment properties.
Large builders or developers often offer incentives including a’cash-back’or the payment of a deposit to encourage the purchase of new builds. Problems can occur with builder’s deposits since the discount set relates to the builder’s valuation of the property, not an independent surveyor’s valuation. Most mortgage lenders will offer the funding predicated on either the price or valuation, whichever may be the lowest. A few lenders will accept a builder’s deposit but it is vital to reiterate that the valuation set by the builder must match with this set by the independent valuer.
Those few mortgage lenders, who do accept builder’s deposits, is only going to accept deposits all the way to 5% of the property valuation and / or insist that the borrower puts down a 15% deposit themselves. Therefore the idea of purchasing property without any money down has been redundant for sometime.
Issues relating to new build valuation have lead lenders to scrutinise very closely the survey process and sometimes to check their contact with lending in particular areas of the country. Some lenders are also asking borrowers to pay larger deposits particularly on flats of between 25% and 30%, against a market norm of 15%.
My advice for landlords over the coming months is to watch their local housing market very carefully for newly completed properties which are sticking. In cases like this landlords shouldn’t feel shy about making seriously below market value offers. Where they’ve their finance in place landlords might be happily surprised when the developer decides to “bite their hand off “.