An example of this was an email that I received this week from my friends at Landlord Action who had been contacted by the BBC about a new programme they are making. The email said:
“BBC2 have contacted us about being involved with a programme called Property Watch. They are planning a series of programmes on property prices and the economic downturn, and we would like to hear about your property problems. They would like to hear stories and views from Landlords all over the UK facing repossession or struggling to meet their mortgage payments.”

As landlords and investors we all know the problems that we are facing at the moment. Does a programme like this actually help anyone or does it just make the situation worse? What we need is some positive news to inspire people, to lift their spirits and remind the general public that things will get better and to build confidence in the property market again.

The property market will recover when first time buyers start to buy again which will be when we reach the point when it becomes cheaper to buy than it is to rent. Unfortunately first time buyers listen to the news and read the papers as they don’t know any better. Time to do something about this I think. Watch this space as I have a plan which hopefully will be in place by late summer.

If you want to be successful it is critical that you do not allow all of the negativity to affect you. You results and achievements will be as direct result of your mindset, attitude and beliefs. Surround your self with everything positive and block out the negativity. This can be hard to do sometimes but it is essential that you do it.

Kind regards,

Simon Zutshi

With the recession showing no signs of easing, most analysts expected the Bank of England (BoE) to announce a cut as it aims to help stimulate the economy, although we have not seen this happen yet.

This is fantastic news for all of us on Tracker mortgages. Who are now getting even better cash flow form our properties. Be careful not to get used to all this extra cash. Interest rates will eventually go up again so I recommend you put this extra windfall aside to save for a rainy day.

The lower interest rates have been reflected in competitive rates being offered by lenders for new mortgages , however due to liquidity issues the banks are being very fussy about who they lend money to. Many property investors want to take advantage of the current market and buy lots of property below market value but are struggling to get the mortgages. For this reason I think many investors will be looking for new ways to buy property such as purchase lease options.

Interest rates will stay low until the economy starts to pick up, which could be some time.

One of the disadvantages of the lower interest rates is that it is killing the Pound exchange rate. I sent some money over to Spain last month and was shocked when I got less than 1 Euro for each pound. It is going to be very expensive for us to go on Holiday overseas this year and so I expect there will be a boom in UK holidays this year, as people chose to stay at home which will of course help the economy.

We will have to wait and see if BoE interest rates are cut further next month.

Kind regards,

Simon Zutshi

I was surprised to see such a big cut in the base rate of 1.5% in one month. I thought the cuts would be steady, but I guess this may be due to pressure from the Government put on the, totally independent, Bank of England. Many people are predicting further interest rate cuts in December but I would not be surprised if the Bank of England wait until the new year, to fully asses the impact of the November rate reduction. Then again, nothing would surprise me now.

A few other considerations for investors are as follows:

With the improved cash flow for many home owners I think we will see a reduction in the number of motivated sellers who need to sell their homes quickly. With lower monthly interest payments, sellers with a property on the market may be prepared to hang on longer to see if they can get a better price. Having said this, there will always be motivated sellers who need to sell quickly.

The point where the market bottoms out and starts to go up again may be sooner now that interest rates are lower. It will become even more affordable for first time buyers to get on the property ladder and once they do, prices will start to recover and the amateur investors will also jump back into the market keen to take advantage of the much lower purchase prices. The availability of mortgages is still an issue and we need the LIBOR rate to drop, to see the effect on new mortgages being offered. This has started to happen as we have seen a number of lenders come out with good low mortgage rates last week. The best Buy to Let mortgage that I saw was a 4.69% fixed rate with a rent multiplier of 125%. If you can’t make you deal stack up on those figures, guest what…it is not a very good deal!

There are currently 95% Loan to Value (LTV) residential mortgages available although I doubt many first time buyers know that due to the doom and gloom image presented by the media. The maximum LTV for most Buy to let mortgages is still generally 75% and will probably be so while prices are still failing, but I imagine will return to 85% when the market starts to go up.

Will the house prices go up again? Yes of course they will. It is a simple matter of supply and demand. At the moment we have a short term over supply as there are not enough buyers in the market but this will change. We live on an island, a very popular island, with an increasing population and changing social demographic trends which means that we will not have enough accommodation for everyone. Long term demand will outstrip supply and prices will have to go up.

My guess (and that is all it is) is that it may take 2 to 3 years form prices to bottom out and come back to what they were, and then another 7 to 9 years beyond that for prices to double again. By the way, if you don’t think prices will go up again you should not be buying property as it is the long term capital growth that really makes you rich, although you should only be buying property now that makes a cash flow now.

Kind regards

Simon Zutshi

With property prices falling and rents rising it should become easer for you to make deals stack up which has been an issue over the last few years when prices where rising much faster than rents.

That fact is that now more and more people are looking to rent. First time buyers are postponing the decision to buy and homeowners in debt are selling their houses to clear the debt and renting instead.

What this means for you, is that if there is an oversupply of rental property in your area the excess supply should get soaked up, and if there is a shortage of rental property the rents will rise much quicker.
When looking to buy investment property you need to follow the traditional principles of only buying where there will be good long term demand for rental property. Location and facilities are always important.

The issue that we still face is that the average interest rate for a buy to let mortgage is currently 7%, so instead of buying single AST properties, many investors are looking at multi let properties which should give a much higher return and a positive cash flow even if the borrowing is at 7%

As I keep on saying now is a great time to buy as long as:
1) You buy at a very good price, well below the current market value.
2) You are very fussy about that you buy to ensure you only buy property that will be easy to rent.
3) You are buying for the long term as prices will continue to fall until they stabilise and start to rise in maybe 2 to 3 years.
4) The property stacks up when you buy it and you can afford to hold the property
5) You have a safety cash reserve to act as a buffer in case you have any voids or unexpected costs.

Follow these five basic steps and you should be able to acquire some good long term investments for a very good price.