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Tick Tock Goes the Property Investment Clock

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Royal Institution of Chartered Surveyors  Home Builders Federation  Countrywide plc  help to buy scheme  Intermediary Mortgage Lenders Association 

Tick Tock Goes the Property Investment Clock

By - Tuesday 18 June 2013

The UK residential property sector is prime for investment, with the balance between prices, finance opportunities and demand just right. However, like all good things, this must come to an end and time is running out for those hoping to take advantage of current market conditions.

When it comes to real estate, it's always a matter of striking while the iron is hot and buyers need to act quickly if they want to make hay while the sun shines. But why the urgency? After all, the market hasn't even entirely recovered yet.

Deadlines for govt schemes

The government has been instrumental in turning around the property sector, thanks to schemes like Help to Buy and Funding for Lending. However, these short-term policies have an end date and if buyers want to benefit from them, now is the time to act.

Funding for Lending is due to end in January 2015 and is designed to encourage banks and building societies to lend. While it is hoped mortgages will be easy to get once the scheme has ended, a reluctance to lend among financial institutions indicates the market may never return to previous form.

A report from the Intermediary Mortgage Lenders Association (IMLA) highlighted that the mortgage industry is anything but healthy. Peter Williams, executive director of IMLA, said: "Generations of Britons have been raised with the ambition of owning their own homes, which has become a key part of our national identity. But this goal threatens to disappear from view unless we consider what kind of market we want to create for the future and what can be achieved within the scope of mortgage regulations and available finance."

The Help to Buy scheme also has an expiry date and is expected to end in 2017/18. Demand is also very high. Comprised of a mortgage guarantee option (to come into effect in January 2014) and an equity loan component, 4,000 people reserved a new home under the equity loan in the first two months of its launch. The NewBuy policy has also had over 4,500 reservations.

Stewart Baseley, executive chairman at the Home Builders Federation, said: "The Equity Loan part of Help to Buy has got off to a flying start. It has been an unqualified success so far and 4,000 reservations in just two months shows both the consumer demand for the scheme and developers’ commitment to it."

Rising prices, poorer yields

Improved activity levels and a shortage of housing is causing property prices to rise across the country. As values soar, rental yields become depressed. Not to mention the fact people need to borrow more money from the bank.

Prices look like they're only going to get greater over the next couple of years, meaning investors need to take the plunge immediately to benefit from the current environment. Countrywide's Monthly Lettings Index for May has already recorded a total drop of 0.1 per cent. Average monthly rents for one bedroom properties fell by 0.6 per cent in May to GBP 674. Four-plus bedroom properties also experienced a decline of 2.1 per cent in April, taking rents to GBP 1,363.

Nick Dunning, group commercial director at Countrywide plc, said: "Countrywide’s second Monthly Lettings Index reveals that house prices are growing faster than average monthly rents in some parts of the country, resulting in a slight decrease in yields over the past month."

Survival of the richest

Residential property sales in the UK are currently at their highest level since January 2010, according to the residential market report from the Royal Institution of Chartered Surveyors (RICS). In the three months to May, chartered surveyors sold an average of 17.9 properties during.

With activity increasing in the property sector, competition is also making a return. Consequently, the market will once again enter a state of survival of the richest. This means average buyers will need to have a considerable amount of money behind them if they want to get their dream property - sums they may not be able to raise if wages do not increase in line with inflation.

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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.

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