_By Steven Currie_
So many postscripts have been written about the Northern Rock crisis that, two months after landing on an unsuspecting public, it shows no signs yet of going away.
Here at the rental coalface, so to speak, one of the direct consequences has been reluctance among some landlords to fund improvements to rental properties by releasing equity in their main homes.
Many of their number, especially those living in traditional villas in prime locations, have substantial amounts of cash (in the form of equity) sloshing around in their family homes. Until recently, such people were willing to increase their main mortgage to fund improvements to a rental property, or properties, on the basis that an anticipated rise in the value of the main home over the forthcoming 12 months would exceed the additional sum borrowed. This meant that they could redecorate, re-carpet or refurnished the rental investment and be no worse off at the end of the day. But now there are fears that a lack of confidence will ripple out even to the top end of the market, that prices will stall and that new borrowings will decrease the equity in their main home in real terms.
Yet for any buy to let landlord with a conscience, there is no alternative but to carry out necessary external repairs if the safety of occupants is at risk and buildings insurance is not to lapse by default. Meanwhile, every rental property needs to be upgraded internally from time to time; kitchens and bathrooms do date, carpets and sofas become worn and tired, walls and doors scuffed and scratched.
Properties left that way become harder to attract tenants and what had previously been a good-earning and capital-appreciating investment, risks a downward spiral with the real danger that the owner has to sell to cut his losses or, worse still, ends up facing forced repossession.
In many respects, the attitude displayed by these landlords is understandable, given the general agreement that any rise in property values in the short to medium term will be nothing like that experienced over the past six or seven years.
It is at times like these that some property investors begin to wish they had put spare cash into shares instead of buy to let. Yet even during sustained periods of growth, the stock market has never shown a continuously rising graph; there are plenty of examples of spectacular bursts in the value of share prices, only for them to fall back again as a result of some unforeseen economic or political event. Of course, the investors who survive – and eventually prosper – are those who kept their nerve, knowing that the underlying values of a properly balanced shares portfolio was sound and that cashing them in during reversals in the market would be a panic measure.
This is the attitude required of those at the smaller end of property investment, especially if this is their first “rough ride”. They should not think throwing money at a property will buy them out of trouble (it wont) but neither can they afford to ignore necessary repairs or desirable improvements even if the market is slowing around them.
“Business as usual” should be their motto, especially as there are signs that the Northern Rock cloud may actually have a silver lining letting investors. During September, we had hoped to break our previous monthly record by letting 150 flats; in the end the figure was 133 but that was only because we ran out of units to let. Had we been able to meet the demand, lettings for the month would have exceeded 150.
One reason for this is that, following Northern Rock, signs emerged that people renting their homes, and who might normally have considered buying in the autumn, decided to continue as they were for at least another six months. They concluded that the slowdown in the owner-occupier market meant they could put off buying a house until the spring because prices were unlikely to rise before then.
This gave a feeling of déjà vu because, as the mid-1990’s proved, the socio-economic factors which cause property values to fall, or at least stall, are the same reasons that lead to an increase in demand for houses to rent, with its consequent upturn in income for landlords.
Any astute buy to let investor, who can reasonably hold their nerve, should find this to be true – and hopefully sooner rather than later.