With interest rates low, inflation on the up, and pension pots increasingly accessible (from 6 April it will be easier and more tax efficient to take a bigger chunk of your pension), that most mercurial of markets, property, is starting to look an attractive proposition, just a few years on from the last crash.
Is investing in property really such a good idea? As ever, caution is the name of the game.
“The property market is unlike it’s ever been before – and a lot of people don’t realise that,” says Kate Faulkner, the author of Which? property books, who has been buying and renovating properties since the 1990s. There is money to be made in property, but the days of buying any property and instantly making money have gone, she warns.
“Today’s property environment is a much more discerning market,” says Neil Woodhead, founder of Ready Rentals, an online resource that provides support to self-managing landlords.
“With heavy reliance on internet marketing, buyers generally like to purchase a property that is in good condition as it can be difficult to raise mortgage and refurbishment costs.”
Should you spend your pension pot on property development? “I wouldn’t risk your whole nest egg, but yes, it is certainly worth considering risking a proportion of your pension or finding an alternative way to fund the property development,” says Simon Thompson, director of AccommodationforStudents. He notes that annuity rates, which are at historic lows of around four per cent, are looking increasingly unattractive.
Here are ten tips and pitfalls to consider when looking at the property market.
One of the problems with stories about house price growth is that, post-crisis, prices aren’t necessarily rising; in many areas they’re recovering.
According to LSL stats, while London is the only region where property prices have beaten inflation since 2004, only half of the capital’s 32 boroughs have recovered at higher rates than inflation.
That said, London remains a fairly safe investment bet, with a three to five per cent annual rise the latest prediction (boroughs tipped for particularly strong growth include: Barnet, Ealing and Lewisham).
Cities such as Nottingham – where at the height of the market you might buy a property for £120k that is now worth £60k – have forecasts of 2 to 3 per cent annually, meaning it could take over ten years to recover.
There has been a move away from family focused living, says Faulkner, making it increasingly difficult to sell big, old houses out in the countryside.
“People want to retire to communities; to walk to restaurants,” she says. This shift has boosted retirement villages such as Anchor, which has two new communities in Hampshire on the market and is also getting interest in its Weybridge development.
“We were a little concerned about the level of interest back in 2011-12,” says Howard Nankivell, head of sales and marketing, “but things have started to pick up in the last two years. The market has changed for the better.” In short, isolation is becoming a harder sell.
“It’s a myth that people always make money investing in the buy to let market,” says Faulkner, who labels some of the information available in the space “appalling”.
Someone cashing in their pension for a buy-to-let flat may get a few months’ rent in, but there are often unexpected bills – such as wear and tear and replacement appliances – that come with having tenants.
The real problem, however, is inflation. “While pension income can be tied into grow with inflation, rental income typically grows at a lower rate than inflation, just one per cent a year,” Faulkner says.
People aren’t moving as quickly as they used to. When they buy they want to put their stamp on it, and they want to be able imagine doing so. If you’re selling to this type of buyer, ensure every single room is finished to a high standard but avoid unnecessary flourishes.
“Make sure the property is as clean, bright and fresh as possible and if it is furnished minimise clutter,” says Ready Rentals founder Woodhead. “Neutralise wall colours and carpets and, if unfurnished, dress up a little with pictures, plants, light shades to hide bare bulbs and so on: let the property do the talking.”
Spending a small fortune doing up a house is only worthwhile if you want to live in it or you want to rent it out and need to abide by the myriad legal rules and regulations.
Faulkner recently sold her mum’s house, which was in good shape but needed rewiring – meaning redecorating – and a new boiler. “We only did the boiler,” she says. “A young couple wanted to make it their own and wanted to redecorate. As long as you’re honest you can come to an agreement – let them do the redecorating. No point putting a new kitchen in but they will want to be warm.”
By and large, there are two types of buyers: those who want to make a house their home, and people who want a wreck to renovate. With a wreck, making it ‘wind and water proof’ is vital, with heating and electrics also worth reviewing, otherwise leave it be.
According to Faulkner, other potential hubs of value for cash-flush investors include: properties where the leasehold has gone below 70-80 years and you exchange based on extending the lease; and homes with fire damage or subsidence issues and you are backed by a good RIC surveyor and builder. If you can get them for a bargain price, selling could prove profitable.
This may seem obvious but it’s a common stumbling block. Auctioneers offer properties typically at 25 per cent less than what the buyer wants – if you start too high you’ll simply deter would-be buyers (it may not even get picked up during online searches), but start too low and you won’t get as much as you could have done.
You want as many people through the door as possible; market it for a fair/low price at ‘offers over’. “Compare quotes from estate agents and keep an eye on comparable properties in the area and what they have sold for recently,” says Simon Thompson, director of AccommodationforStudents.com.
If getting the best price means getting as many bidders as possible then the timing of your sale is also vitally important. And – with winter dominated by Christmas celebrations and summer the school holidays – we are only a few weeks away from most experts’ top tip for sale season.
“Spring is always a good time for the market,” says Thompson, “and if kept in good order to increase kerb appeal, the outside of your property will look better at this time of year. Longer daylight hours also give more opportunity to book viewings.”
Investing in property can be addictive – a lot of people just need a project. They have money burning a hole in their pocket and make investments that don’t offer worthwhile returns. The typical renovator-investor might look for a 20 per cent gain.
To do this, they need to buy a property for £60k, spend £20k on it and then sell it on for just under £100k. There are very few houses available that can offer that value these days, experts agree. “I see so many novices who underestimate the cost of the work and overestimate the price they can get for it so end up over paying for the property and making nothing,” Faulkner warns.
There has never been a better time to self-build, says Faulkner, who calls it her “number one investment tip”. Financing, plots of land and support are all available, and the government is encouraging councils to help self-builders find plots.
Typically it’s a rule of thirds (e.g. £30k for the plot, £30k for the labour and £30k for the materials), making a house for costing £90k which, if done correctly, can be sold for £120k. That’s an instant 30 per cent return when sold in a market where it can be mortgageable.