So its all well and good having these issues in the market and just watching them occur from the sideline without knowing how to either protect yourself from them, or to benefit from them in some way.

You would want to protect yourself from the downside (i.e. voids, negative equity, expiration of fixed mortgage period etc) and benefit from the upside (i.e. buying at discount or seeing value where others do not)

There are numerous ways to protect yourself against a market drop and the opportunity arises with each decision you take in property investment; for instance:

  1. Where am I going to purchase property (i.e. which city)?
  2. Where in this city am I going to purchase property (i.e. inner city, or outer suburbs)?
  3. What is my tenant profile (i.e. who is going to live in this property)?
  4. What are the interest rates on the mortgage?
  5. When does the mortgage move from a fixed to a variable rate?
  6. What is the variable rate, and does my property still cashflow under this extreme circumstance?
  7. What is your LTV on this property? How does it impact the LTV across the portfolio?
  8. Are you heavily weighted with one lender?
  9. What are the exits with the property?
  10. What development can I add to the property in order to protect my capital?
  11. When will I sell the property?
  12. Are there any cross-subsidies in your portfolio which you could take advantage of to pursue a different strategy?

The list goes on – these are just from a 1 minute brainstorm. It is evident to see from the above that having a holistic view across your investments and how a property fits in is very important, but also a view on what the market is doing will help you understand the financing of the project / portfolio.

What if you have an existing portfolio?

What if you already have a portfolio which is now suffering losses? Each portfolio is different and this needs to be assessed on a case by case basis. However, one thing for sure is that in property and investment – cashflow is king. But some questions could be asked in this scenario too:

  1. Do you have rent guarantee insurance? Does it cover this? Some landlord insurance provides this as standard alongside buildings cover
  2. Do you have enough capital set aside to ride out a the period over which you expect there to be a void?
  3. If renting as a HMO are you able to rent the entire property out to a single tenant by making some small changes?
  4. Mortgage pauses (not holidays since these aren’t available) could be used – also speaking to your local authority about deferring council tax and energy providers to defer payments.

What if you’re concerned about your residential property?

Your home is not an asset unless you are planning on uplifting the value and selling it on to realise some tax free gain; but its only considered a gain once you sell – otherwise it doesn’t count and is a liability.

Assuming your income is still protected (i.e you have not lost your job) then If you have a long or medium term left on your mortgage, you are pretty well protected as you don’t really need to sell yet. If you are in a situation where your fixed term has expired, it might be a time to call your mortgage provider and move onto their fixed term product – this would come at a fee but generally without a valuation which means you can do it quite quickly.

If you are in the middle of selling, you may experience some difficulties in the process – either through buyers cutting their offers, or valuers cutting their valuations.

In the next part I’ll look at commercial property and the various elements involved. Thanks for reading!