Independent Article #2
Property market recovery
Since 1996, when the mortgage industry introduced the now unbelievably popular buy-to-let mortgage, our economy has been intrinsically linked to the property market, for better or for worse, for richer and for poorer, until bankruptcy do us part.
But why am I writing about this today? Well, the organisation at the centre of all things property, the RICS, has reported an increase in buyer interest for the third month in a row and they have reported that this may well be a good sign of a property market recovery, or at least to slow the decline in property values and sales.
Why should we care about this sort of thing if we are not investors ourselves? The answer is firstly that we are all property investors if we own our own home. The value held within it can allow us to upgrade or to take out funding against its value. Also, this multi-billion-pound business made investors very wealthy and the taxes that the Government was able to extract from the purchases, sales and profits were substantial, so any property market recovery will speed up the end of the economic mire we are currently all wading through. The economy picks up, banks start lending, businesses redouble their efforts coming out of financial hibernation, and a new wave of small businesses float out onto the lake of entrepreneurial opportunity. Good news all round.
But can a property market recovery really be on the horizon? One thing for sure is that it will not be fuelled by first-time buyers. Prices have come down and there is an available pool of property that is just desperate for a sale after a long cold winter with no viewings, but prices are still far higher than they were before they sky-rocketed a few years ago, pricing most first-timers out of the market completely. Also deposits required by lenders are far higher now than they were previously, with two thirds of all mortgages requiring a 25% deposit; the average is apparently 22%, well out of the reach of the cash-starved job-insecure first-time buyer. No, any property market recovery is likely to be generated by the financially motivated buy-to-let crowd. Just like sharks in the great oceans, they can smell blood from miles away – and with the prices dropping, viewings non-existent and properties hanging around for months on end, they can smell a bargain.
We had grown fat and comfortable, convinced that the property market would defy all historic evidence and continue to rise indefinitely, so it came as a big shock to some when prices started to plummet and people started to use words like “credit crunch” and “recession”. Even a slight property market recovery might get people’s hopes up and with them their spending, offering a lifeline to a beleaguered retail sector and paving the way for small businesses everywhere to spring up like blooms from their bulbs after the winter has subsided.
Author: Bill Morrow, co-founder of Angels Den, the small business funding and speedpitching specialists who bring entrepreneurs together with business investors to develop corporate success stories.
