The recent decision by the United Kingdom to leave the European Union has led to serious turmoil in stock markets around the world. Many investors are panicking and selling off stocks in a hurry. Smart investors, though, can be prepared to ride out the storm by making a few savvy moves.
In times of trouble, people tend to look for the safest possible investment. These generally fall into three groups: stock in big companies, bonds of financially stable governments and real property. That last category should be of interest to homeowners and house hunters alike, as the recent Brexit vote is likely to be a boon to real estate markets everywhere outside the United Kingdom.
It’s not that people are flocking out of the UK and looking for houses to buy. Rather, many people are looking to invest in real estate, but the British pound sterling is experiencing a loss of value. On the other hand, for people looking for real estate either as living space or as an investment, the time has never been better.
Let’s take a look at how this could affect each group individually.
Real Estate Investors
Owning rental property is a big wealth-building strategy component for many people. Whether you serve as landlord yourself or turn the property over to a management company to handle the day-to-day operations, rental income is as close to passive as it gets. You get the rent minus expenses, plus the appreciation of the property.
One of the biggest costs associated with buying rental property is the mortgage. Very few landlords own rental property outright. More often, they mortgage the property and use the rent to cover the mortgage payment.
Interest rates have been historically low as a means of economic stimulus for quite some time, so costs have already been modest. With the uncertainty created by the Brexit vote, most experts expect the Fed to avoid raising those rates. Mortgages will stay cheap into the foreseeable future.
Moreover, investors seeking to invest in a more diverse real estate portfolio are buying mortgages at an accelerated rate. They’re doing so because they’re seeking a safe investment, and prime mortgages (loans made to people with good to very good credit) represent a pretty safe place to park money. Since there are more dollars available to lend, the cost of those dollars (the interest rate) will drop further.
If you’ve been on the fence about buying an investment property, the time could be right. Low rates and rising property values could make it a valuable part of your retirement strategy.
Most of the reasons why home ownership makes sense for investors also make sense for people looking to buy a home for themselves. There’s one more factor, though, that could tip the scales in favor of buying a home.
One of the other effects of increased mortgage availability is an easing of mortgage requirements. The door is open for borrowers with less-than-optimal credit scores. Many of these people have been scared away from the mortgage market because they fear they won’t be approved. The increased availability of credit, though, may make mortgages easier to get. Working through a community lender like Destinations Credit Union can offer borrowers the personal guidance they seek along with access to loan options that are not always widely available on the open market.
Homebuyers with good or very good credit may be able to up their price range a bit. If you’ve been on the market for a while and had little success, it may be time to take another look at payment projections and re-evaluate how much house you can afford. With interest rates approaching 3-year lows, you may be able to find an affordable house payment on a more expensive house.
If you’re a current homeowner, these rates should be attractive to you, as well. If you’re thinking about selling your home, now’s a great time. Cheap loans and rising rents will continue to push more people into the housing market, and more demand means prices are sure to continue to increase. Now might be a good time to get an estimate or test the waters to see how much you might get for your home.
If you’re happy with your home but want to make some upgrades, getting a home equity line of credit to do those remodels is another way to take advantage of low rates. Remodeling a bathroom or kitchen using a home equity loan could help you take advantage of the surging real estate market, and it could make your house a happier home in the meanwhile.
If remodels aren’t in the cards right now, it may be a wise opportunity to refinance. If you got a loan when you had less than perfect credit but have been making payments consistently, you could qualify for a significant savings in your monthly payments. The same is true if your mortgage is more than 10 years old. Refinancing now could lock in some serious savings and take some pressure off the budget each month.
You can probably save money on your homeowner’s insurance too. If you haven’t shopped around for a while, you might want to see what switching can save you. Our partnership with TruStage and Liberty Mutual offers great discounts to our members. Liberty Mutual was one of the companies cited in The Simple Dollar’s Blog for the cheapest home insurance. Get a quote and put some extra money in your pocket.
Don’t buy into the hype. The Brexit vote is not a time for panic. It’s not a time to stuff your money in a mattress. It’s a time to make smart moves to protect your investments, when disciplined investors can significantly improve their position. You can do it, and Destinations Credit Union can help!