How can you protect yourself from the risk of property prices falling?
Within the property investment market we often hear about how much money can be made.
People who are already investing tend to have stories of vast profits, as do many of those selling property or finance options.
According to the Council of Mortgage Lenders, 21,000 properties were repossessed in 2014 and nearly a quarter of these were investments. Clearly, not all landlords are investing successfully.
In addition to nearly 5,000 properties a year being taken back by lenders, some of these are likely to be in negative equity – where the property’s price is lower than the amount the landlord owes via their buy-to-let mortgage.
This is because property prices fall as well as rise and average prices in some areas of the UK have not yet recovered fully to their pre-credit crunch levels, meaning some landlords have yet to recover lost values.
From an investor’s perspective, it is worthwhile looking beyond the news headlines and keeping in touch with professionals to know the reality of property price ‘rises’ when they may be simply ‘recovering’.
Although the media tends to use average figures, as a broker that organises mortgages for individual properties all across the UK, we know these average figures disguise the true situation: that while certain areas have experienced huge growth, such as parts of London, prices in other areas are performing very differently.
But how does this information help you as a landlord?
Most investors hold properties for 15-20 years and during that time it is likely that prices will go up and down as the market goes through natural cycles.
Therefore, in addition to carrying out thorough research and ensuring the rental income of a property exceeds the costs, you can help to protect your property investment from price falls by maintaining an equity level of at least 15 per cent so that you are always able to remortgage, even if prices fall.
When considering investing in property, always know the risks and rewards and discuss how to avoid problems other landlords have experienced with buy-to-let experts so that your investment has the best chance of success.