There has been a lot of talk lately about changes in the UK housing market and how consumers are going to respond to the financial crisis. With house prices showing a little more volatility than most homeowners would like, we might be witnessing a big structural change in the housing market for a long time.
What’s the situation?
In Britain there is a large, young middle class who are keen and motivated to save for the future. Traditionally, young people have saved up a deposit, enabling them to take out a mortgage and invest in a home. The capital growth on the home acts as ‘interest’. Now, however, people are less keen to invest in property and we might be seeing more people looking to rent longer term rather than buying houses outright.
What does this mean for landlords?
This will have a couple of impacts for landlords. Undoubtedly the strongest effect will be the increase in demand for rental properties. With more people looking to rent rather than buy, prices will be driven upwards. Of course, this will be coupled with a decline in demand for people purchasing properties outright which will have the opposite effect, driving down prices for property. Somewhere, the market will stabilise, but quite where is unclear.
What does this mean for me?
As a landlord with a hold on property you are in a strong position as you can manipulate both your capital growth and income growth: there should be a steady supply of tenants in the future regardless of what house prices do. It does mean that Rent Guarantee Insurance is going to become an ever more useful tool for the landlord – an extra dependency on income from your tenants means that you can’t afford to miss out if they fall into arrears.
It’s difficult to see whether the UK is going to become a nation which prefers to rent rather than buy in the future, but there are certainly going to be a few sticky years where people are just unable to buy property, whether they’d like to or not.