The “Credit Crunch” was a disaster for many property investors, those who found themselves overexposed at a time when property values more than halved overnight in some cases. Many naïve investors, who were talked into putting their hard earned cash into city centre apartments, and foreign off-plan developments, hundreds and sometimes thousands of miles from home, ended up bankrupt.
But this was not the case for many landlords with sensibly balanced investments and portfolios of properties by the time the “crunch” came, in fact just the opposite. The collapse of Lehman Brothers, and the subsequent banking crisis, which to a large extent is still on-going today, brought quantitative easing and a low interest environment which benefitted established landlords no end.
As property consultant David Lawrenson says in his latest Letting Focus newsletter, all of a sudden interest rates fell to the lowest levels ever. Consequently, over time, and as it became clear borrowing rates would remain at record low levels, asset prices rose, and property is a major asset class.
Many people in the UK see this as a uniquely British phenomenon, but this is far from the case: it was replicated across the developed world, from A to Z – America, to Australia, Canada to China, and Singapore to New Zealand.
David Lawrenson argues that the restrictions on lending following the crisis added another fillip to thousands of small-scale landlords’ fortunes as suddenly loans were in short supply and hard to get, which meant potential property owners could not easily get new mortgage finance.
“Generation Rent”, as the phenomenon became known, grew the private rented sector (PRS) over a pretty short period from something like 10 or 12% to 19% of the UK housing market – demand for rentals went through the roof.
So, as David Lawrenson says, “if in 2008, you already had mortgages that backed previous property purchases – and especially if those mortgages were on base rate trackers, (as many buy to let loans were), it was very happy days indeed.”
The ups and downs of the property cycle have long made people fortunes and others large losses. The pre-crunch property boom brought in many unsuspecting and naïve investors, as an economic boom always does. David Lawrenson says: “There are winners and losers all the time in life, but the credit crunch which started eight years ago was a great thing for landlords with established portfolios.
The low point of the property crash is now a distant memory. Particularly in London and most of the South East and East of England, but also in most of the rest of the UK, property prices quite quickly recovered. So here again the crunch created a huge opportunity for those with cash resources or those who could still persuade the lender to extend mortgages when properties were being offered at distressed fire-sale prices.
Of course, a bonanza has to end sometime, and by 2015 the Treasury and the Bank of England decided enough was enough and introduced some swinging tax measures which make the lives of buy-to-let landlords a bit more difficult. Brexit now introduces another layer of uncertainty, so will the PRS come through unscathed, will it yet present yet more opportunities as private renting is predicted to go on growing – only time will tell.
The Credit Crunch Boosted Landlords’ Fortunes https://t.co/vsibh2MJa9
— LandlordZONE (@LandlordZONE) October 21, 2016