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Blocks of flats at the spearhead

Blocks of flats at the spearhead of the present property price crash

Blocks of flats seem to be at the spearhead of the present property price crash and the fall out from the buy to let bubble bursting. In terms of price reduction, this type of property has suffered the most with the most severe reductions attaching to new build blocks of flats.

Blocks of flats, traditionally have represented a way for people to obtain a foot on the property ladder, however, in more recent years, there has been an almost insatiable appetite for this type of property with buy to let investors. Although the market seems to be in turmoil at the moment, oddly, town councils are still being swamped with planning applications for construction of new build blocks of flats. It is of course possible that many developers believe, now is a good time to start construction, the current credit crunch is likely to ease, and banks being the commercial entities they are will soon want to start loaning money again albeit perhaps with slightly stricter lending criteria.

Often costing a good deal less than a standard home, flats, are both economical and often better suited to the lifestyles of the young & single. Blocks of flats, whether conversions or purpose built are a feature of all towns and cities in the United Kingdom,

Social & economic changes in the United Kingdom led to an increase in demand for blocks of flats and at the height of the buy to let boom, flats were seen as a way for investors to be able to purchase property, relatively cheaply and then rent the property to a tenant with the rental yield being responsible for paying the monthly mortgage. Nationwide, thousands of buildings were either constructed as new builds or in many cities, converted from older often commercial buildings. However, recent changes in the economic climate have left many purchases of flats nursing both negative equity and often empty property.

A number of reasons have led to this situation, firstly not all Blocks of Flats are popular, people who live in flats tend to prefer to want to live close to where they work and be able to go out more often. Many developers have found that newly built blocks of flats, in isolated areas or away town and city centers are not proving popular. It seems that many have simply been constructed to satisfy the demand from buy to let investors all confident at the time they would be easily rent able.

Secondly, at the present moment, there is a large over supply of flats in the market, there are actually now more flats available for purchase and rent than there are people requiring them. Rental yields have fallen and as many lenders have withdrawn certain styles of mortgage, obtaining the necessary finance is difficult if not impossible.

Many of the major cities in the United Kingdom are seeing blocks left only partially occupied or even empty. One other area of great concern to landlords is the increased cost of borrowing. Less than a year ago, there were over 3500 buy to let products available from lenders, this has now shrunk to less than a thousand and is set to decrease further. Interest rates have moved up and landlords are finding that even if they do have a tenant, they cannot offload the extra interest on to the tenant it’s early days at the moment, but recent changes to the capital gains tax rate may see many landlords opting to sell their flats and take profit now. From 6th April, in respect of housing investments, capital gains tax has been reduced from 40% to 18%. While these properties remain unoccupied landlords must ensure they have adequate blocks of flats insurance to ensure the asset is protected against the usual perils of buildings. Whilst the buy to let market is not too large to effect all house prices. If sufficient landlords of flats decide to sell up, it could put even more pressure of prices in this part of the market.

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