It’s been a remarkable few years for the property market and landlords who purchased property pre-2020 will almost certainly have made a large chunk from appreciation over the past two years.
For example, an investor with a portfolio of five terraced houses in Medway at an average value of £215,214 each (c. £1.01m total) in December 2019 will find that same portfolio having risen to £259,388 each (c. £1.3m total) in December 2022.
That’s a massive jump of around £220k across the portfolio or £44k per property. If we break this down, that’s a whopping £9k appreciation per month or a 20% increase!
The Market Has Changed Dramatically
The market has certainly changed for good and it’s currently a particularly challenging environment for investors due to not only the increased values but also a lack of supply and dramatic increase in demand. The latest Zoopla report has indicated that, whilst the flow of new supply of homes for four weeks to 27th Feb is 5% up (which makes a change to previous months), demand for homes in the same period is 70% up.
Speaking with investors, I’m hearing the same comments which are along the lines of how properties tend to be selling for 5-10% above asking price, having record levels of interest and potentially there being concerns around things like being down valued by the mortgage survey.
Medway is certainly experiencing a house price boom, but the question we need to ask is how long that is likely to last and what should investors be doing to continue growing their portfolio.
Boom Or Bust?
This is a question on the lips of a lot of investors I speak with! Surely the eye-watering growth cannot continue and there must be a ceiling to it.
The Land Registry doesn’t give any 2022 data yet, but the latest Zoopla report comments on how they are forecasting an easing in price growth during 2022.
At the last Property Success Network event, Andrew Harvey from Growth properties who was our keynote speaker made an excellent comparison to the London house market where growth stagnated for a while and, whilst has returned, remains lower than the rest of the country.
The point Andrew made was how prices cannot realistically continue to increase at a dramatic pace, outstripping wages, forever. This is what happened in London and is a large reason why house prices began to stagnate as people needed to move further out in order to afford a property.
The graph below helps demonstrate this as you will see that, following the last financial crisis and huge house price growth in London (green circle), from July 2016 (red circle) Medway’s house price growth outstripped London by a large percentage.
With the increase in home working and ease of access to the city centre, people choosing to live further out in places such as the Medway towns where properties are more affordable is probably going to be an irreversible trend.
Something to watch out for, however, is a situation where Medway properties experience the same glass ceiling as London and growth begins to slow.
What Should Investors Be Doing?
The question I’m often asked is what investors should be doing right now and to be honest, it’s very difficult to give a definite answer. The first thing to note is how I always advise patience and not simply purchasing for the sake of it.
I recommend that investors take time to re-educate themselves on the market as things such as property prices and rental rates have changed so dramatically. This means that what may seem like a bad deal (based on 2020 numbers) could actually be a much better deal than you realise.
I would certainly urge caution on jumping in too soon however and paying over the odds for any random property. My recommendation is to continue looking, continue carrying out viewings and you will find the right property (at the right price) eventually.
It could be worth reviewing whether it’s right to look into a different area or adapt strategy, however, I suspect that this mini-boom will be short-lived. What I don’t anticipate is a sudden drop in prices. I suspect that what will happen is the interest will start to cool off and offers won’t become so wildly above the asking price.
Remember that property is always a long-term investment and is proven to pay strong dividends over a number of years!