Boost for first-time buyers as fears of house price dip sparks £2.9bn property fund freeze
FIRST time buyers could be set for a mini-boom, thanks to a positive spin-off of jitters in the housing market.
By Lana Clements
Fears for the property market running high
The seemingly un-stoppable housing market is likely to level out or even dip as nervous investors pull cash out of property investments amid fears the market in Britain could crumble.
The news is not great for those with significant exposure to property and as a sign of the panic sweeping through the sector, a £2.9billion property fund giant was yesterday forced to freeze investors' cash, following a surge in withdrawals from backers.
Managers of the Standard Life UK Real Estate fund have now stopped trading in a bid to stop the investment from collapsing and losing the cash of all its investors.
But a fall in prices is good news for first-time buyers who have long struggled to get a rung on the property ladder.
The Standard Life fund will now have to raise cash by selling off some of their portfolio, before allowing investors to again access their investment.
Experts said more property funds, which spread cash over a range of investments, could look to protect investors by preventing them from taking their cash - or liquidating their holding.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "Property funds are clearly under pressure as a result of the Brexit vote, and we could now see a new wave of investors being unable to liquidate their property funds quickly, which we last witnessed during the financial crisis.
"This is part of the problem with investing in open-ended property funds, and one of the reasons we donít recommend them to investors.
"Property does offer diversification, and a reasonable yield compared to government bonds, but investors must be willing to accept high costs, and a lack of liquidity when the market turns down."
He added: "Given the outflows the sector seems to be experiencing, this could well put downward pressure on commercial property prices. The risk is this creates a vicious circle, and prompts more investors to dump property, until such time as sentiment stabilises.
"Continued low interest rates in theory provide support for commercial property, because as prices fall, yields become even more attractive."
However, it's not all doom and gloom in property market.
Housebuilder Persimmon today released trading results for the first half of the year, which showed average selling prices were up by six per cent and revenues had jumped by 12 per cent from last year to £1.49billion.
Mr Khalaf added: "Persimmon, quite rightly, point out that itís really too early to judge the effect of Brexit on the new homes market.
"The company isnít blinking when it comes to its capital return programme either, and still plans to pay out a further £5.50 per share to investors by 2021.
"Based on the current share price, that means investors will get over a third of their investment back in cash over the next five years, provided Persimmon are able to make good on their promise.
"Low interest rates, and a big supply-demand imbalance in the UK housing market, will continue to be supportive of the house building sector. Likewise people arenít suddenly going to stop wanting to own a home simply because the UK is no longer going to be a member of the European Union.
"However, until we get a picture of housing activity following the referendum result, the stock market is likely to push the sell button first, and ask questions later."