The UK property market has, over the past few decades been seen as one of the best and most profitable investments one can make. With good returns, great prospects for expansion and a lot of scope when looking for a property and an area which fits investor budgets, it would seem that the UK market is somewhat of a nirvana when it comes to properties and their associated investments.
Experienced investor, Paolo Aliatis commented: “Although property prices are still steady and, in some cases, have been increasing due to Corona, different property classes vary completely in terms of profitability.
Paolo Aliatis also said: “Parts of commercial office and retail space are going to be demolished while other ones like warehouses should have had an improvement…”
Aliatis continued: “Within the property market, residential has been relatively stable although London especially, has been in a very high vacancy, compared to historical measures.”
The coronavirus pandemic however has changed the market, potentially permanently and both the prospects of the market as well as how people are utilising properties are changing and adapting to both the new normal as well as new and emerging consumer behaviours.
How are UK homeowners utilising property equity?
Traditionally and in previous years, equity in properties was mainly utilised by homeowners when remortgaging. For example, having paid of a portion of equity and loan capital [the mortgage] over the course of a few years, homeowners would look to remortgage at a more favourable rate, having acquired additional equity. Alternatively, the equity may have been utilised when it came to selling the property, with greater profits able to be extracted once the mortgage balance was settled by the sell-on value.
“Banks will still be strict with regards to what they will lend and there will be heavy credit checks and due diligence processes to go through,” comments Ruban Selvanayagam of Property Buying Company (Property Solvers).
Tailored property finance coming to the fore
Recent years however have shown the mortgage and property markets to be much more ingenious and a lot more flexible when it comes to what homeowners and property owners can do with equity they have acquired over the years in a property. Rather than simply utilising it for a better rate when remortgaging (which is still popular), second mortgages and other forms of property finance may be secured against that equity.
For lenders, the additional equity in any property, be it a primary place of residence of a buy to let investment property can reduce the risks associated with lending. Ultimately, should the borrower will own more of the property and over time will become less reliant on their mortgage. This means that the risks to the borrower increase whilst those to the lender slowly decrease over time. Thus, many underwriters and lenders view the situation that the borrower will be less likely to fail to make their repayments, which would lead to damaged credit ratings and potential repossession orders and loss of the property in question through the courts.
Is the UK property market still profitable?
The property market in the UK still does have the potential to be profitable for investors with a large appetite as well as for ambitious investors. There are opportunities in the market and although things may have changed in recent times, demand for both purchases and rental remains, albeit with a bit more fluctuation.
Paolo Aliatis said of the potential of profitability in the UK property market: “Rental prices in London have dropped considerably but they haven’t collapsed yet. Occupancy remains high but this is mostly due to people still paying the rents while on furlough. The market as the rest of the economy is in artificial respiration and we will have to see what happens when all this furlough people join the unemployment percent…”
Aliatis continued: “In terms of profitability, there haven’t been those huge [property] deals coming up because everything is still at somewhat of a standstill, with most people waiting and watching the market to see what happens.”
Demand for rentals is still there, but renters are less likely to seek to take many risks with their places of residence. Additionally, with people being put on furlough, many landlords have lost out and have thus, not been able to sufficiently invest in their portfolios.
For those who may be looking to buy or sell properties, Paolo Aliatis had the following words of advice: “Whoever is trying to sell now is not achieving a lot of success, unless it is countryside property or family houses outside London. Buyers are still waiting for the market to collapse.”