Property in 2009 - Exclusive insider review from BIP!

Over the last few years the property news has varied considerably with the good years of 2000 until the all time high of 2007, where prices were soaring and many economists thought the boom would not end anytime soon. It was inevitable with consumer debt at its highest, low employment and the banks on the verge of crippling property had to reduce accordingly with the economical factors we face today. Since 2007, property prices have plummeted in the region of 18% from the all time high according to the leading indices such as Nationwide and Halifax.

This report provides some of the history and causes of the credit crisis and property in 2009 and going forward for the long term investor. The report further distinguishes the difference between ready made deals and armchair investments and how to benefit in the current climate.

The credit crunch

The Summer of 2007 (August 9th) was good with house prices still rising, unemployment was falling, the economy was growing at an annual pace in excess of 3%. However it was the day which is reminiscent of August 4th 1914. On that day, the European Central Bank and the US Federal Reserve injected $90bn (£45bn) into jittery financial markets. But two days later, Gordon Brown said Britain was in "as good a shape as it could be to weather the storm". Of course the reality was rather different!

The financial markets had seen new and sophisticated methods in the lead up to 2007. Between 1990 and 2006 an entire ‘shadow’ banking system had formed constituting of hedge funds (the number of which increased by 65%), private equity partnerships and ‘structured investment vehicles’ set up by the banks themselves. Credit was so easy that anyone pretty much could walk into a bank and money would be available easily. Many consumers lived beyond their means, borrowing money to buy houses, fund cars and holidays and live life to the full. The financial institutions were lending irresponsibly to consumers who really could not afford to pay back the loans taken.

Asset prices - particularly the cost of homes - rose rapidly, presenting seemingly insurmountable problems for first-time buyers. Lenders solved this difficulty by relaxing criteria for granting a loan. They then bundled up the poor-quality loans, mixed them up with some good-quality mortgages, and sold the packages of debt in a process known as securitisation. The money raised through securitisation was funding more than half of Britain's home loans.

In 2008 we saw long established financial corporations such as Lehman Brothers and Bear Stearns collapse. Freddie Mac and Fannie Mae, the pillars of the US Mortgage market were rescued. We all recall queues outside Northern Rock, the nationalisation of Bradford and Bingley and well known outfits such as MFI and Woolworths collapsing. All of a sudden within the space of 12 months the World financial markets were in crisis, house prices rapidly falling and unemployment on the rise.

We are now (August 2009) at a point where we have seen the worst of the recession and there are signs of recovery. UK Gross Domestic Product grew by 0.1% in May according to the National Institute of Economic and Social Research, as reported by the Telegraph. House prices are rising now with 1.6% rise in August 2009 quoted by Nationwide. Estate agencies are reporting increased activity and Gross lending in July stood at £16bn, 26% higher than in June, though still more than a third lower than in July last year.

Where are we now in the first quarter of 2010?

There are signs of the market bottoming out with some economists suggesting it has bottomed out. Clearly house prices are rising now and it is always wise to buy on an upward trend and seasoned investors are flocking in now buying up bargains. Although credit is somewhat the barrier, but so long as you can borrow now is certainly a good time to buy. Buying at discounted prices now effectively provides you with a buffer for any further down turn in the market. Due to property prices falling, the yields are far greater and if you happen to have the money in your bank, it is far better in property providing you with a double whammy – a better yield annually and potential capital growth. Many amateur investors have left the market and cannot obtain the finance while lenders are much more stringent as to who they take on their books. Surveyors are also very cautious in their valuations and often this can lead to greater discounts than expected.

Credit seems to be the most difficult barrier at the moment with the lenders criteria very stringent. It is prudent to monitor your credit score and ensure it is always credible for lending purposes. Equifax www.equifax.co.uk and Credit Expert www.creditexpert.co.uk can be useful to register with to keep up to date with your credit score.

Lenders are clamping down on No money down schemes and the more seasoned investors are plugging money into property whereby the returns are greater and gearing is lower, hence the rental positive cashflow is far greater. It is recommended though to always have a contingency readily available for void periods and maintenance and thus experienced investors are monitoring their business costs carefully and allocating sufficient funds for contingency and property investments accordingly.

The market seems to be on the turning point with encouraging signs of buyers coming back to the market and some great bargains out there. The main constraint is the lending at present, in particular for the more seasoned investor who perhaps is considered to be high risk due to the number of properties.

Nationwide has recently commented on saying house prices could end up higher than they started as we have had month on month rises. According to Nationwide's latest monthly snapshot of the property market, house prices are already higher than at the beginning of the year after rising month on month since spring 2009.

The Nationwide building society predicts that if prices remain unchanged through December, then they will end the year nearly 6% higher than they started it.

"I am very surprised," says the Nationwide's economist Martin Gahbauer.

"At the start of the year I would have said there was next to no chance of that happening," he says.

"I thought there was every chance that 2008 could have been repeated."

So what about 2010?

Will prices continue their upward path, slow down, or even fall again?

Jonathan Davis, of financial planning firm Armstrong Davis, is certain that the past year has simply been a false dawn.

"There has been an unprecedented level of government stimulus to the economy which has had a positive short-term effect - low interest rates, bank bail outs, the car scrappage scheme and the VAT cut," he says.

"Take away all that and there's nothing holding up the economy," he says.

Property, Stock Market and savings?

Many people often compare buying investment property with the stock market. Both are investment vehicles, which in turn will make you money and if done carefully secure you a decent pension and livelihood. However we believe property is the best mid-long term asset class for investment purposes. Well being property people we would say that, but let’s look at some of the fundamentals.

Property is not as complex as Stock market trading. One can easily be hurt if they do not have the specialist knowledge required to be a successful trader. Anyone can invest in property and make big money with little risk employing our methods of investments.

Leverage – property is the only asset class available to anyone which allows one to leverage money from the banks and lenders alike. With a mortgage ranging from 75% -

85% one can easily multiply their money by as much as 5 to 6 times with an 85% mortgage.

Say you had £25,000 and you invested in a savings account at 5% per annum, this would give you a return of £1250 (assuming no tax), whereas this same £25,000 in say one property at £100,000 with a 5 % increase in capital growth would give you £5000! For the purposes of this illustration you are leveraging the other £75,000 from the bank. Furthermore the positive rental income of say £100 per month gives you a further £1200 per annum on your £25,000. It is a no brainer!

Savings and Stocks do not allow one to do this, you actually only earn on the money that is yours not the banks. The stock market will not allow one to trade £100,000 unless you physically have the money, whereas with property one can leverage up to 75% of the property value on a typical buy to let mortgage now. It was actually 85% up until 18 months ago.

Property is a physical asset that one can see, feel and touch and let’s face it land is scarce in the UK and for a growing population and aging population there is simply not enough property. It is the classic supply and demand formula, whereby the demand outstrips the supply and thus we feel property prices will rise. The Barker review of housing supply in the UK highlights the underlying factors impacting UK house price growth in respect to supply and demand. Furthermore the Halifax predict by 2021 the shortfall in houses will be circa £400,000

Valuations – so what is a true market value?

A property is only as good as what someone will pay for it! It was pretty simple valuing property during the good times prior to 2008, however today who knows what a property is valued for. Surveyors seem to differ considerably - perhaps due to the pressure on them from the lenders and fear of being sued like in the 1990s.

However there are a number of good indicators as to what a property is worth today using online tools such as Nethouseprices, Rightmove and Hometrack. One can also pay for an Automated Valuation Model (AVM) from Rightmove or Hometrack where the typical cost is circa £20 per report. Lenders often use these reports particularly in the case of further borrowing or in some cases remortgages.

Rightmove will provide you with properties on the market and provide you with useful information in reference to the estate agents and letting agents with contact details to call them, as well as information relating to nearest stations and location. The location feature allows one to go into another website namely aboutmyplace which allows one to view the property in birds eye view and locate closest schools, supermarkets and universities.

Hometrack and Nethouseprics provide you with sold data taken from Land registry of houses on the same street and neighboring streets. This often is a good indicator as to what the house is worth as surveyors tend to go with sold prices in comparison to asking prices you would find on Rightmove.

If you then want to know more about the neighborhood, you can access another valuable online tool upmystreet.

Finally in order to work out the property appreciation / depreciation a site recommended would be http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/html/46ud.stm.

Now you should have all the required information to make a good guess as to what you think it is worth. Of course condition and any alterations to the property i.e. addition of an extension incorporating an extra room etc would have to be accounted for.

Ultimately the surveyor will determine the value and occasionally you may be surprised, but the tools above will certainly give you a good idea as to what you think it is worth and what to expect in terms of the valuation and rental.

Financing the deal

Mortgage Express was the investors dream with the instant remortgages product allowing investors to pull out cash on day one if they negotiated a deal at say 80% of the market value with Mortgage Express lending 85% of the market value. Birmingham Midshires and TMB were not too far behind although they had stipulations in regard to instantly remortgaging on day one and usually it would be three months. However lending was easily available and the process was pretty straightforward and efficient. Many investors benefited from building big portfolios and pulling out thousands of pounds, although most investors were geared at 85% of the Market value and thus today are in negative equity.

However in Mid 2008 Mortgage Express withdrew the facility of instant remortgages and to follow was the nationalisation of Mortgage Express with other lenders such as Birmingham Midshires becoming increasingly stringent and some just stopped lending. To get a mortgage today is like gold dust! Competition is scarce and there are pretty much 3 or so main buy to let lenders, with Birmingham Midshires taking the lions share of the market and hence can be very picky as to who they want to lend to. So do not be surprised if you are rejected and you have an A1 credit rating! Investors now have to put money into deals which in turn provide lower gearing at 75% and better yields. Those investors who have the money to put in and can obtain the credit are in prime position to pick up some bargains. See our current deals page for some of the bargains you can buy!

Armchair investing – what is this?

In layman’s terms Armchair investing is simply where you pay £x in return for "y" properties. Our deals are provided nationwide and are genuinely discounted from RICs valuations. The deals have been pre negotiated directly with the vendors in ensuring that you the investor receive as hassle and stress free experience.

Our BMV property and Armchair investments come fully packaged whereby the deal has bee negotiated and secured. The finance is provided for you, the valuation done by the lender providing the finance and the conveyancing already in place for you. The deals typically take 4 weeks to complete.

Please see our property investment success stories page with examples of some of the deals we have done.

Who are Buy Investment Properties?

Buy Investment properties are essentially a group of investors who started buying property a few years ago and since have developed a substantial portfolio and now simply help others in acquiring discounted properties.

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