Opportunity cost and how to time the property market

20 November 2023

In a world where the base rate sits at a 15 year high, thousands of ‘experts’ have jumped to forecast huge drops in property value and the media depict all doom and gloom – uncertainty is bound to arise. The property space has, undoubtedly, experienced an incredibly challenging year and a half. As a result, many new investors are airing on the side of caution and watching from the sidelines. But what is the real opportunity cost in doing so? 

There is another side to the market, one which isn’t spoken about enough. In this short article we will be discussing the property market as it stands and the opportunities available now, that weren’t 18 months ago. 


Housing crashes? A thing of the past

Historic market crashes have led many to assume a housing market crash is the natural next step. However, we haven’t and aren’t likely to see this, due to a number of mitigating factors:

– The economy has still seen growth, albeit slowly, incomes are on the rise and unemployment is low.

– Lenders are supporting customers with refinance options, thus reducing the number of forced sales.

– Tougher stress testing on affordability since 2015 has given the market more resilience. Buyers can’t access low rates, so they borrow within their means (or not at all) and have manageable levels of debt. 

– With stricter stress tests on buyers, purchasing power is reduced. What this means is buyers passing these checks can comfortably afford the property, even if rates increase further.

(Ref: UK House Price Index, October 2023).


High interest rates and the bigger picture

There is no denying that higher interest rates impact returns, it is the cost of leveraging funds in the market. But that’s just one side of the coin. The other illustrates the opportunities presented by this market, that we otherwise wouldn’t have had.

If we take a step back and look beyond this period of higher interest rates and economic uncertainty, a different picture begins to emerge. Our experienced investors accept higher interest rates, if in turn, they can secure an exciting opportunity that still generates a considerable return now, with the potential for long-term growth. And by ‘considerable return’ we mean net rental returns of 7-10%, far exceeding savings account interest rates (around 5%). This, paired with the foresight of a few years and how your investment will look then, makes for a very promising  decision. 

From a wider perspective, the demand for rental housing is rising across the UK. Naturally, rent prices already have, and are expected to rise. In addition to this, rates are forecast to (slowly) come down, which gives investors options to refinance with higher returns. Essentially if you invest now, can you take advantage of the current market conditions and be confident that your investment will strengthen in the coming years. 


Final thoughts

Whilst the current market presents challenges and circumstances are different for each and every investor, there are unlocked opportunities now that won’t be available when interest rates settle and market confidence returns. So, sitting aside might be the right decision for some, but there is certainly space for investors to benefit from entering the market now.