Adams Market Insight- Who’s doing what?
22nd March 2023
Beauty is in the eye of the beholder. Or in property terms – value is in the eye of the buyer.
As such it’s always important to know who is active in the market, to best pitch a property sale to the appropriate target audience, with the biggest budgets, or just because its always worth being aware who else is fishing in your same pond. As with any form of market, the actions of others can have great consequence on the value of your own assets. This is no more evident than in 2023 so far with property now consistently being discussed on a macro scale. The obvious main example being buy-to-let Landlords. With harsher new tax costs, and new legislation seeming to be coming in left, right and centre, it stands to reason that Landlords will offload assets which are no longer yielding the same cash flow as yesteryear, or those for which they now need to handle a host more complications to be compliant. But what is happening in Brighton & Hove? What are the main trends we are witnessing in the demographic and approach of those buying and selling investment property?
Starting with sellers, it is certainly true that some buy-to-let owners are now cashing in. There are two financial sides to property; day to day cash flow, and long term capital appreciation. With increased costs including “the new normal” for mortgage interest rates and changes to Section 24 tax rulings hampering the cash flow side, many now look to their capital value, which in all most all cases will be a good step above the purchase price. In more dramatic cases, cash flow may now be almost nil, and so hands are being forced to sell, as opposed to choosing to.
Importantly though, this Landlord “exodus” isn’t exactly as large as first thought. At least not in Brighton & Hove. In the local market, rents continue to climb by record levels, this is a national trend but is very evident on the South Coast in particular. This goes part way to balance the outgoings, and help keep cash-flow attractive. In addition to this, whilst mortgage rates today would cause any of us to fall off our chairs 12 months ago, the “system” as a whole has held firm, thanks to a certain event in 2008. Whilst lending is more expensive now than we have become used to in the last decade, rates are yet to reach the level against which buyer’s are stress tested on application. In short, mortgages are expensive, but those with them can still afford them. There hasn’t been any huge increase in repossessions which is the clear evidence of this point, but it is certainly true that just because it is still affordable, doesn’t mean its not enough to make some sell. And that is exactly it, “some” are selling due to the above quoted reasons. In all, total listing numbers locally are not particularly striking at present and have consistently remained within the normal yearly ebb and flow. Landlords may have now lost some love for their property assets, but property as an investment type still beats anywhere else you could reasonably go and place the funds of a sold BTL. Even if that is a slightly biased personal opinion…
Now to buyers. Here there is an entire new market that is not being spoken of. Starting with the known obvious though. With higher mortgage costs, cash remains king. It is not necessarily that there are more cash buyers in the market than previously, but it is the case that they make themselves more known, and it can be said also that there are less buyers opting to purchase with a mortgage. None of this should be of great surprise though. What is interesting to note is some other differentials beyond just cash Vs mortgage.
Purchasing in the name of Limited companies has grown. This could be perceived as stock moving from individual and accidental Landlords to larger entities and professional investors. Which is certainly true to an extent. Corporate and professional Landlords will be more willing to weather the storm and any dips in cash flow, simply because they have the resource to do so. There is also a mind set of some investors at the moment that there is a deal to be had in purchasing property from struggling Landlords and those who want out. Even though, as described, these sellers are not as common as it could be assumed.
In addition to this though, what we have noticed at Coapt is that many of those “company” purchases are actually first-time investors. Those who do not own vast portfolios but are simply changing approach. Incorporation now being one of the first items on the agenda of financial advisors. This then does not support the idea of consolidation of assets with the “big players”, but instead just a change of approach for buyers, rather than a change in fundamental demographic.
So who are these new investors, willing to take the plunge into property investment in East Sussex, despite all that is going on in the sector at present? Well again, it is not so much a new demographic, just a change in approach. It can be easily forgotten by local HMO Landlords in particular, that the 6-7% gross yields we enjoy, to others in the property world, is seen as a gold mine. Once again, cash-flow, being the focus here. If it now costs more to be a Landlord, and is more agro, it stands to reason that buyers will want to seek out the investments with the most overhead. Thus many buyers look to East Sussex in particular and the direction and rate of rent growth, and away from smaller BTLs, to high yielding HMOs.
For any questions of further information on this topic, including a more microscopic view into your own buyer competition, or the investor types who would hold an interest in your assets, please do not hesitate to contact me. Please do also refer to my previous article, speaking more broadly to misconceptions within the property market at present, and why local and situational context is more important than ever in this industry.
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