Your Property and the Credit Crunch

The credit crunch and recession has greatly affected the property market so much so that many are now facing negative equity. But even so, the market still presents a number of opportunities for property investors with spare cash to make property purchases.

Property has always been a popular investment choice. But due to the credit crunch, property prices have continuously declined and negative equity has become a very strong possibility – causing many people to switch into panic mode. But for the sophisticated investor, the recession and the credit crunch have provided a potentially profitable opportunity for many.

If you are a property investor with spare cash and you are considering additions to your property portfolio, you could do what many others are doing right now and turn the current climate to your advantage. If you want to maximise your returns, the strategy is to choose the right time to make a property purchase. And that time is when the falling trend of prices has significantly slowed down or ended.

Abundance of affordable properties

The current condition of the property market has also led to a rise in the number of cheap properties. Auction houses especially are reporting that the present market has presented tremendous value for buyers. Because there is less competition in the auction room compared to the figures in previous years, buyers are able to obtain incredible value with many investors buying below market value.

Back to basics

The onset of the credit crunch has also led to a back to basics attitude by homeowners and indeed banks. Due to falling property prices, many households have made the decision to improve their properties to add value to their homes. Recent study conducted by the Royal Institute of Chartered Surveyors revealed that the cost of home improvements had gone up by 20% over the past two years, with roofing being the most expensive.

Buy to let investing

At first glance, buy to let investors appear to be on the losing end because of the weakening property prices. The current market situation may have left many buy to let investors with inadequate assets against which to guarantee loans they need. However this doesn’t spell the end for buy to let investors. As prices continue to stabilise, buying properties becomes more viable for those investors who can readily obtain a mortgage or have ready cash. Market professionals estimate that the industry will witness an added reduction within the next year. Even at present there are an estimated 50% of properties that remain unsold at auction.

Rental market

The credit crunch may have significantly dented some sectors of the market. However, the rental market continues to stay unaffected. The National Landlords Association says that the demand for rental properties remains high across the UK property market. This is due to the fact that consumers are finding it hard to obtain mortgage finance – compelling them to stay in rental homes. UK lettings agent Your Move also says that people who would typically buy are opting to renew their leases and stay put in rented properties until the market stabilises.

Overall, the market situation may not be something to be cheerful about. However investors who are able to pick up cheap properties – especially below market value – and are able to obtain an interest only mortgage can expect to see annual returns on capital employed from 5% all the way up to 50% or more.