The credit crunch – what this will mean property investors

The sub prime mortgage crisis in the US has pushed up the cost of money for lenders, leading them to raise the risk premium on mortgage rates. So even though the UK base rate was held last week, mortgage rates are still on the rise.

Meanwhile, about half a million borrowers are coming to the end of fixed rate deals in the next 6-12 months and many of them are buy to let investors.

So what does this mean for Property Investors?

Property Secrets has pondered this credit squeeze question for a while and believe there will be a wobbly couple of months where things will be good for credit worthy/ sensible buy-to-let investors and homeowners and bad for sub-prime home owners and buy-to-let owners.

The key for those investors with good credit histories and stable cashflow is to absolutely avoid 'cheap' sub-prime property.

Property Secrets also recommend avoiding ‘holiday home’ in preference to city investments, where economic prospects are good.

“In the next 2 months I believe we'll see two things happen.” Comment Neil Lewis, CEO Property Secrets.

“Sub-prime home owners and sub-prime Buy to Let investors (typically those who ask for 'nothing down' investments), will see their mortgage rates rise in the UK.”

“Quality investors - i.e. those with a good credit history - and a job - or provable income - will continue to get good credit and not see much change.”

“In the next 6 months, we'll see two further developments.”

“Central bank base rates will come down slowly - we will be spared further increases. This will - over time - make loans cheaper for those with a good credit history. Also, interbank interest rates will stabilise.”

“Banks will then fall into two camps - those that win and those that lose from the current crunch. The losers will put up their mortgage rates - the winners will not. And therefore mortgage share will shift from the losers to the winners - and some weak lenders will go out of business.”

“This means shopping around for rates will become more important.”

“For the time being, rental rates will rise and property price growth will be dampened in the UK - we're probably looking at 2% growth per year in the UK next year (this is my guess - based on a gut feel rather than proof).”

“This is a good market to be a landlord.” adds Neil.

“And, for quality credit / cash-driven investors, this will be even better.”

Property Secrets has always steered clear of the 'nothing down' route and promises. They always seemed to be based on shifting sands and high risk.

They didn't predict that 'nothing down' would be ended like this - but it is almost certainly over now, which is a good thing.

It also means we can expect lower interest rates for Euros, Pounds, Dollars and most other European currencies in 2008.

This coupled with good rental growth suits a property portfolio perfectly.

So where should you invest next?

“My money will be going to those cities and countries that offer strong economic growth, plus long-term employment increases and population expansion, because I still prefer to buy and hold (than to turn and sell) and this is easier when markets grow a little slower and rental markets have time to perform.”

“I think we are now going to see these sorts of conditions appear in our chosen CEE markets, and that really encourages me for the future, especially medium and long term.”

“Add to that a potential downward cycle to interest rates, starting in the next 1 to 4 months, and this will stop costs rising while increasing revenues.”