Assetz® News - Landlords told: invest in property while rates are low

Landlords told: invest in property while rates are low

22nd June 2009 |

One of the inevitable features of a recession is that of repossessions. With many people losing jobs or finding their businesses are making less money, the consequences are severe for those whose mortgage repayments are not sufficiently protected to cope. As the economy slides, repossessions go up.

The Council of Mortgage Lenders (CML) had predicted that this year would see 75,000 UK households suffer this fate, a drop in the ocean compared to the subprime epidemic in the US, but tens of thousands of cases of misery nonetheless.

However, the body has now revised this downwards to 65,000, a situation attributed to three factors, these being greater government intervention, more "forbearance" by lenders and the much lower costs many mortgage payers face due to cuts in the Bank of England base rate to its record low level of 0.5 per cent. At the same time, the CML expects 360,000 households - 2.5 per cent of the total - to be in arrears by the end of the year.

Commenting on the situation, the CML said: "The raft of measures taken by the authorities have stabilised the economy and will sow the seeds for a recovery over time, including in the housing market." As a caveat to this, it stated that the improvement in the economic outlook will be a slow and gradual one.

Nonetheless, the figure represents a further lightening of the gloom and for property investors, this could be welcome, according to investor website smartlandlord.co.uk.

Responding to the CML prediction, managing director of the site Keshav Thukaram said: "A drop in repossessions is good for the stability of [the] private rented sector. Although the CML did not single out buy to let, we anticipate BLT [buy to let] mortgage arrears will continue to be substantial - even if they are largely unchanged from previous figures, their share of the total number of mortgage arrears is likely to rise. "

For investors, Mr Thukaram said now is in fact a very good time to invest and noted many are missing this boat. He stated: "Some landlords are behaving irresponsibly - by not investing the difference between rental income and mortgage payment in improving their existing portfolio and/or making the most of opportunities to buy new property with better yield potential. Once mortgage payments start rising again, they will be so used to spending this extra income elsewhere that they will find it hard to meet rising mortgage payments."

He added that taking protective measures against potential problems - such as non-payment of rent by tenants losing their jobs - is a measure that can be taken.

But for many investors, the advice or the building up of a portfolio may resonate. After all, if, as has been suggested many times, the bottom of the market is close, there may be good reasons to invest for capital gains. If, as Mr Thukaram suggests, now is an opportune time to buy to ensure better rental yields, then the case for doing so will be even stronger and help to ensure that landlords are not among those - be they 75,000 or 65,000 in number - who come a cropper this year.