It pays to be a little cynical when it comes to positive comments about the state of a market. This is especially the case when they come from parties with vested interests.
Nevertheless, it is worth considering comments that have recently been made by ‘informed people’ regarding the residential sector. According to one of the country’s biggest housebuilders, The Vistry Group, the housing market is too big to fail.
Its CEO, Mr. Greg Fitzgerald, has recently said that the government is clearly intent on supporting the sector through the current crisis. This is likely to continue after the crisis and will boost the market further.
He argues this is evident by the further extension of the stamp duty holiday and the mortgage guarantee scheme, which will support deposits of as little as 5%.
As he put it: “The pandemic has created a market. The Divorce rate is up, people are thinking ‘do I want to live in a high rise flat, do I need an office?’ … I said it at the end of our board meeting in March 2020, ‘who is going to buy a house with all this going on?’ I turned out to be a case of ‘who isn’t?’.”
His opinion is supported by property analyst Neal Hudson, who said, “The housing market is so central to our economy, consumer spending, to our personal sense of worth in some cases. A house price crash for any government, particularly a Conservative government, would be politically very challenging.”
The market is certainly healthy now. Demand is strong, there is a huge shortage of properties and prices are rising. Inflation (always a great friend when it comes to house prices) is a very real danger and interest rates are unlikely to skyrocket any time soon. It could easily be argued that the good times are set to continue for some time yet, and the government will make every effort to ensure this.
However, a word of caution! Irrespective of whether it is politically challenging, history has shown us that markets do not always act rationally, and corrections occur despite the best efforts of governments and central banks.
Importantly, whilst the government has not been fully supportive of the buy-to-let sector is terms of its tax regime, it is at least taking, and should continue to take steps to avoid a property crash. With its support and the ongoing housing shortage, the likely outcome over the medium term is a softening of prices and a period of stagnation.
Of course, there is always the approach of ‘if prices go up 20% and then fall by 10%, it doesn’t matter if you bought at the right time – you are still 10% ahead’.
The bull run will inevitably end at some point. The question is whether, despite upturns and downturns, the increase in value over the medium to long term meets your requirements. Any increase or decrease in value during the investment period is notional until the property is sold.
Regardless of the vagaries of capital growth, if your aim is an attractive, secure, and trouble-free rental income and the property is producing this, why sell? Seeing money go into your bank account every month is unlikely to lose its appeal anytime soon.