Should I invest in property after the COVID lockdown?
Once again, we have found ourselves staring at four walls as we prepare to exit lockdown 3.0 thanks to the stay-at-home rule being lifted in England from March 29th. With the time we’ve had to reflect you may be one of the many people wondering ‘is now the time to invest in property?’ Well, the market has remained open with estate agents and surveyors completing property and site visits, but what about the timing for investors?
The residential homebuyer market has quietened after last year’s surge in activity, largely boosted by the stamp duty holiday. An increase in national house prices has meant competition has reduced so many investors are preparing themselves for potential bargains.
Cheap Money
Why else might now be a good time? Well firstly, money is cheap right now! With many mortgages at less than 3% this makes it easier to achieve a profitable return.
Dwindling Cash
Cash savings are achieving minimal interest for savers, yet more damage is done by inflation which is effectively eroding the buying power of your hard-earned cash. Bricks and mortar is a popular way to turn cash into something tangible.
How can I invest in property?
There are many ways to invest in property, we always recommend starting with one question – am I investing for capital growth, or to achieve an income? Establishing whether your goals are primarily long-term or short-term will help to direct you towards the most suitable form of property investment for your needs.
Here are three common approaches:
Buy to Let
Make the agent your friend and be ready to offer on a property that can easily be let and turn you a consistent monthly profit.
HMO
Much like a standard buy to let property you’ll be letting the property out to tenants to generate a monthly income. However, with some additional forward investment in licensing and planning you’ll be able to let one property to as many as 6 tenants, boosting your returns as well as minimising the impact of void periods.
Tart and Turn
Whether you want to improve a property with simple cosmetic work, or more significant structural renovation, many investors are trying to turn a quick profit by capitalising on homebuyers looking to upsize. Changes in the workplace due to COVID have increased the demand for adequate workspaces in the home as well as outdoor spaces.
Auction
The auctions have now moved online which has made a space previously dominated by property professionals now more accessible to less experienced investors. Clearly a bidder should be thoroughly prepared both in terms of understanding the property they’re bidding on as well as access to finance should they be successful.
How can I raise the funds?
If you’re new to property investment then seek experienced advice. There is often more than one approach that could be best for you. Some of the options we arrange are:
Standard Buy to Let mortgages
With a typical minimum deposit of 25%, the lender will allow the mortgage to be on an interest only basis. They will assess affordability based on the potential rental income the property can achieve, more so than the personal income you can prove.
Bridging finance
If you need to move quickly for an auction purchase or you’re looking to buy a property that needs some love, then bridging finance can be a useful form of finance. Typically, you can borrow up to 75% of the new property value but, the lender may deduct their fees and interest charges from this number so you need to have a larger deposit to put down compared to a buy to let mortgage. You will also need to have a credible repayment or exit strategy to ensure you’re going to be able to repay the bridging loan before the end of the loan term which is usually no more than 12 months. Compare Bridging loans here
Cross-charge
If you already own property then you may even be able to utilise the equity tied up to offer even greater flexibility of borrowing. Some bridging finance loans will even allow you to borrow up to 100% of the new purchase price, leaving you with extra cash to complete the project.
Release equity
A more traditional way of releasing equity tied up in property you own; whether that is your residential home or a rental property, is to remortgage or take a secured loan. This may take longer to arrange than a bridging loan but it is likely to be a cheaper way of raising money and allows you to either be classed as a cash buyer; which strengthens any bid you put in for a property; or it can increase your deposit to make the cost of additional borrowing taken against the new property cheaper.
YOUR PROPERTY, IT COULD BE REPOSSESSED IF YOU DO NOT KEEP UP THE MORTGAGE REPAYMENTS. MORTGAGES AND SOME FORMS OF BRIDGING AND BUY TO LET FINANCE ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
Abbie Dickson-Davies
