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One rather strange phenomenon of the current downturn in property prices is the rise of the reluctant landlord. These are people who have tried to sell their houses but have been so reluctant to trim the asking price with the various market falls, that they have decided to rent out the property instead. On the face of it, this seems to be perfectly reasonable behaviour – hanging on to the asset until the market picks up and therefore realizing a better price. However, a lot of these reluctant landlords have moved on to another rental property, therefore becoming tenants themselves.
A big factor in this sort of arrangement is the recent fluctuations in rental prices. Although this year has shown a sharp increase in rents (around 12%) so far, it is now on a downward cycle as spoilt for choice tenants are driving a hard bargain. In fact one reliable source, the estate agent Knight Frank, believes that rental yields will nosedive by as much as 10% over the coming months - wiping out any recent gains. If this pessimistic prediction is realized, these new reluctant landlords will be faced with lower rental yields in the face of mortgage payments that remain stubbornly high. Will they then decide to sell at a reduced rate after all to balance the books or will they persevere, hoping for better times ahead? Either way, whatever these reluctant landlords decide to do next will probably form the next twist in the property downturn saga.
Savills were previously one of many commentators engaged in estimating the size of the misery for home owners. For example, earlier this year, they predicted that prices could fall 25% by the end of 2009. Now, thankfully, they seem to concentrating their efforts on predicting when the upturn might happen. The general consensus is that, although it will vary from region to region, it will generally not begin until 2012 – coinciding with the London Olympics.
The estate agent says that the South East and Scotland will be the first to recover, thanks to a combination of property shortage and local purchasing power. The year 2014 will see a recovery for the West Midlands with Wales, Yorkshire, Humberside and the North West having to wait until the following year. The North East props up the rear of the predictions with its recovery scheduled for 2016. Savills say that by 2020 the market will be prospering once more with property prices rocketing again. A mere twelve years to push then!
The average house price fell by a further 1.9% during the month of August, to £164,654 -according to Nationwide. This means that, according to the building society’s figures, the cost of the average home has fallen in value by 10.5% over the last 12 months – the first double digit annual fall since the fourth quarter of 1990. In part of their analysis of these figures the Nationwide said that it expected the next move in the Bank Rate to be down but that this would be unlikely to breathe much life into the market whilst economic confidence is so low.
(Image courtesy of elmleaf.co.uk