Sunday Times Home

ended 06. May 2022

A journalist at The Sunday Times (Home) is writing a piece of property flipping. She's keen to get views on how rising interest rates will affect the flipping market. Will they mean less people flipping as it's more expensive to borrow? Or will the fact that borrowing costs are rising drive more owner-occupiers out of the market, bring down prices and therefore provide more properties for flippers to purchase at less than inflated prices? Deadline is tight. Cut the waffle and write like a dream. The Sunday Times is the Sunday papers, after all.

 

12 responses from the Newspage community

Star Quote
"The typical "flipper" is often someone with experience who looks at the property as a cold business proposal rather than an emotional attachment, so will be less affected by interest rate rises as long as the economics of the transaction add up. As a general rule, it is the level of gearing that can be achieved, the highest loan-to-value possible, that is is more important, which is why bridging loans are often used in this scenario. For those looking at flipping a property, there are still some great opportunities, but it really does pay to get professional advice and make sure your preparation is thorough and the sums add up. This could be the difference between a flipping success and a flip-flop."
"There is currently a race to the bottom in bridging rates, which is the finance typically used for flipping. Since the last two increases in the base rate, the cost of borrowing among the 150 or so bridging lenders we work with has been slowly edging down. From 75% LTV with 100% works for 0.75% per month to 0.65%. Lenders are also offering more leverage, with Shawbrook Bank going up to 85% LTV. In an effort to capture greater market share and potentially due to the erosion of the value of money, to avoid a downtown in purchasing they are offsetting through allowing higher gearing. So I actually think the market will remain buoyant and, if anything, spur higher traction in the area over the generally preferred "buy and hold model", especially as 'term' lenders are factoring in base rate increases as soon as they can. I'm currently advising portfolio investor clients to consider refocusing their strategies on renovating and selling."
"As a rule of thumb, there’s profit to be made in a crisis by taking advantage of some poor unfortunate's misery, and this crisis will be no different. As rates rise, the inevitable increase in repossessions will provide property flippers with more stock to choose from. However, they’ll likely need the cash available to do the deals. The rise in base rate will eventually filter through to short term finance such as bridging loans, which are the go-to product for developers. This will reduce margins further at a time when new buyers may be under the cosh from lenders with tightened affordability."
"As mortgage finance becomes more expensive and harder to obtain, we could see an increase in flipping as investors decide buying the property themselves isn't worth it. There may, for example, be a rise in 'forced flippers', buyers who intended to buy the property themselves, but then find mortgage finance too difficult or costly to obtain."
"On the face of it, interest rate rises are a flipping nightmare for everyone trying to make money quickly from property. However, with interest rate rises only the brave or those with sufficient resources can cope with the tighter profit margins. Smaller property flipping firms will struggle as rate rises continue."
"In recent years, the "hobby developer" (whose aim is to add value to flip) has been able to purchase property in a fairly cost-effective way with many run-down properties keenly priced, coupled with lower interest rates. However, higher property values, rising interest rates, the increased stamp duty often required in an additional property purchase, and the rising costs of building material, are making flipping suddenly look a less attractive proposition. The profits are much smaller with many questioning whether it is worth the effort for such little return. Yes, those wishing to "flip" a property may well offer low, but there is such competition from other buyers that low offers are no longer attractive to vendors."
"Canny investors will see money to be made in a property that needs quite a bit of work and may not be mortgageable through a normal high street lender. That means they will have to go to bridging or specialist lenders and if anything we've seen costs go down in that sector of the market. However, the days when investors could simply buy a house, do some pretty basic refurbishments, and it would be worth 10% more in a year are almost certainly over. Though house prices are likely to continue to rise due to supply and demand, the rate of growth is going to slow this year given the cost of living crisis and rising rates."
"The cost of borrowing is not necessarily the issue for many flippers, even though rates are rising. Stamp duty bills are often massive, demand is outstripping supply and the cost of funding refurbishment works has increased dramatically. Until supply and demand come back to normal levels, we are unlikely to see much change in house prices. We have clients looking for multi-million properties and they cannot find anything available. One of them has just submitted a best and final offer on a £3.5m property in Wimbledon."
"Being able to successfully flip a property will come down to the skill and expertise of the investor, not the interest rate. While interest rates are rising, there are plenty of opportunities to flip property, normally where value is added through refurbishment or extensions. Typically, this will involve obtaining a bridging loan as the properties are not mortgageable. Bridging loans will ensure buyers can acquire the property quickly, which is key in this market where demand far outweighs supply. The interest rate available will depend on whether the work required is simply cosmetic or if any structural work will be carried out. Rising building costs and supply chain delays will have a bigger impact on how much profit is made. Of course, there is a higher risk with this strategy but like any investment, the greater the risk, the greater the reward."
"Flipping properties has become increasingly popular lately with many flippers on social media gathering huge amounts of followers. However, with rising property prices, the "bargains" have been few and far between. As rates rise, we will see a gradual reduction in property prices as the market slows and the market will become more attractive for flippers."
"Generally speaking, investors looking to flip properties tend to use short-term finance called bridging. As this is already more expensive than a standard mortgage, its less likely to be impacted by small rate rises. However rising mortgage rates could make some homes more difficult to sell and therefore more likely to accept lower offers from investors looking for a bargain."
"Serious property investors and flippers never worry about rising interest rates in the short term as their focus is always the long-term gain. While the cocktail party investor is most likely to be put off right now, those who have a business built around the property market will be more active than ever before. They will be seeking out dilapidated properties to add value and sell in the short term, especially whilst there is lack of quality housing stock on the market."