I had a call last week from someone who’s been trying to buy his second rental since February. Three offers turned down, one deal lost after the survey, and by the time we spoke he’d convinced himself the market had taken against him personally. Then Rightmove’s July figures came out and he emailed me again, this time to ask whether he ought to sit on his hands until the autumn, because prices are falling.
I understand why people think that. In practice, though, I think he’s reading it backwards.
Here’s what actually happened. The average asking price of newly listed homes fell 1% this month, to £372,359. A dip in July is normal – the ten-year average is about 0.2% – so this is five times the usual, and the biggest July fall in a decade. Rightmove’s explanation is that sellers were competing for the attention of buyers distracted by the World Cup, a heatwave and a change of Prime Minister. On top of that, the number of homes on the market is close to a twelve-year high for the time of year.
So sellers are trimming because they’ve got competition, not because anyone has rung a bell at the top. There’s a difference between those two things, and at the moment it’s worth about 1% to anyone paying attention.
Now put the other half of the picture alongside it. Advertised rents outside London hit a new record of £1,397 a month in the second quarter, and £2,791 in London. Paragon has landlord yields back above 7%. Around one in six rental properties has left the sector over the last decade, and the Renters’ Rights Act coming into force on 1 May hasn’t had people queuing up to come back in. Fewer properties to let and no shortage of tenants – you don’t need an economics degree to work out where rents go from here.
Soft asking prices, plenty of stock, distracted competition and firm rents. If you’d described that combination to me twenty years ago I’d have said get on with it. But get on with it on the right basis, because this is where investors get caught out.
What I’d be careful about is the old habit of buying on the assumption that prices will pick up again. Zoopla said this week that annual house price growth is no longer something you can take for granted, and I think they’re right. I’ve watched two proper downturns and a few false dawns, and the people who came unstuck weren’t usually the ones who paid over the odds. They were the ones whose plan depended on the value going up.
If a deal works on today’s rent, today’s mortgage rate and today’s costs – including the two percentage point rise in tax on property income arriving in April 2027, which I notice very few people have put in their spreadsheets yet – then buy it. If it only works once you’ve pencilled in 3% a year of growth, you haven’t found a deal. You’ve found a hope, and hope has a habit of not paying the mortgage.
The practical side is straightforward. Be the buyer who’s genuinely ready to go: broker lined up, solicitor instructed, deposit somewhere you can get at it. In a market with this much choice, a seller will take a bit less from someone who can move than a bit more from someone who might. Put your offer in at the figure the property is worth to you rather than the figure that feels polite, and be relaxed about being turned down, because you will be, often.
As for my caller, he’s still looking, which I think is the right answer. The time when everyone else is distracted is usually the easiest time to agree a sensible price. Just don’t let the fact that prices have softened do your thinking for you.
By the way, this isn’t financial advice, of course. Do your own research and come to your own conclusion before agreeing to buy anything.
Here’s to successful property investing.
Peter Jones
Author, property investor and ex-Chartered Surveyor
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