How To: Investing in property during recession

Forth Action Invest on November 22, 2022

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The last few years have seen a global pandemic sweep through every country and continent and now, in 2022, the UK is facing a potential recession. 

This recession is predicted to fall deeper as we enter 2023 and continue throughout the year.

Timings within a recession can never be predicted, and neither can the property market.

We often see the age-old question pop up time and time again: ‘Is now a good time to buy property?’ 

Even in more stable times, that question can never be answered with complete certainty.

While the current outlook in the UK sounds daunting, there are practical ways to ‘recession-proof’ your investments or portfolio.

*Please note this blog does not constitute investment advice. Conducting your own due diligence and being aware of risks before making any investment is key. Seeking independent financial advice may be appropriate.

What is a recession?

A recession is formally defined as ‘a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.’

Two successive quarters means six months in a row.

The UK is currently facing a potential recession as the cost of living crisis remains ongoing, interest rates have risen significantly by The Bank of England and energy bills have reached historic highs.

Is property a good investment during a recession?

When it comes to property investing, there will always be a demand. This is heightened by the increasing population, birth rates and life expectancy.

But if you’re planning to buy during a recession, you should ask yourself the following questions along with educating yourself on the risks of investing:

Can you afford it? Is your financial situation stable? Do you have a guaranteed income stream, or multiple, for the next few years? And do you have a safety net?

This could be an opportunity for those with financial safety to purchase investments at lower costs to reap the benefits in the future. Everything should be thought of as a long-term investment, especially during a recession. 

If the property market does decrease in value during a recession, this will only affect you if you decide to sell. 

If you sell at a lower price than when you bought the property, that investment wouldn’t have been worth it.

But just like with any investment, it’s often about the long-term gain and waiting for markets to increase again.

If you’ve found a property deal that meets your criteria and can afford the investment, it could be worth making your first steps into the industry. Your finances should be carefully analysed to determine the best steps for you.

It could be worth chatting with a financial advisor to look at the best strategies for your money.

Do property prices drop in a recession?

Beyond Covid-19, the last major recession labelled the ‘Great Recession of 2008-09,’ was the worst recession the UK has faced since World War II.

This was caused by the US mortgage crisis hitting the British banks.

As expected, these periods bring difficult times for many around the country.

For homeowners, though, many benefitted from lower mortgage payments. This meant they had more disposable income.

Fast forward to 2022, and things aren’t as simple as several years ago, with a pandemic causing real change worldwide. 

Historically, popular housing areas have maintained their demand for rent. While less desirable areas have seen a decline.

This can be very different from those who aren’t purchasing for a buy-to-let as homeowners might struggle to sell their house as people will have less money to buy. Lenders are also more cautious during this time.

Investing in property during recession: How to recession-proof your investments

If you’re already investing, this is a great time to look at your current portfolio and situation. 

1. Don’t panic

It’s easy to see the word ‘recession’ and pull everything out within a second.

But this is one of the worst things you could potentially do, as you may take substantial losses and miss out on the recovery.

A recession or economic downturn is nothing new. Each investment market is always filled with bumpy roads. It means riding these out and focusing on long-term goals.

2. Analyse your situation

This could involve speaking with a financial advisor to ascertain your current situation, or have a consultation with your mortgage broker.

Conversations like these should be taking place regularly whether there’s a recession or not. 

Taking the time to look at your portfolio to see if you’re making the most from your investments means you’ll have greater insight and visibility into what’s working the best.

During a recession, the focus should be on building extra income, maximising returns and reducing risk. 

If you speak with your mortgage broker, work together to identify weak links and look to sell or make arrangements prior to terms coming for renewal.

3. Invest for the long term

If you have the means to do so, investing in property during recession can be an option for building wealth in the long run.

With property, this can act as a hedge against inflation because the property’s resale value will likely increase over time (due to rising prices) and can be used to generate extra monthly income.

As homeowner costs rise, more people could opt for a rental property during an economic downturn. This means rental demand can increase during this time.

For those looking for more stability in their investments, look for guaranteed return opportunities. Like with Forth Action Invest, we offer an opportunity for a sustainable guaranteed return on investment over 5, 10 or 15 years.

4. Diversify

You’re not putting all your eggs in one basket when you diversify.

And diversifying your portfolio can come in various forms. It could mean investing in property alongside other assets for the first time, changing what you invest in (potentially opting for residential buy to let over commercial) or investing in different areas.

Investing in high-demand areas is vital for being profitable during a recession.

While London has been a major hotspot for many years, Manchester and the North West are seeing a huge increase in interest and people are moving north to get away from the higher living costs down south.

5. Find a reputable agent to secure off-market deals

If you’re buying property for the first time or looking to expand your portfolio, working with a reputable property sourcing agent means working with an expert in the field.

A recession means there could be some great opportunities for lower-cost housing, which could be fruitful long term.

By working with a property sourcing agent, they’ll be able to find you off-the-market deals and lucrative investments. They also take the guesswork out of each step, as they have the knowledge and know-how to get the ball rolling.

But do your due diligence when selecting the right property sourcing agent for you, as choosing an agent should be no different than choosing your builder or solicitor.

Make sure to meet with them face to face (if possible) before going ahead with their services and check they’re fully compliant, have a registered website on companies house and are a member of the redress scheme.

Investing in property during recession

It’s crucial to remember you shouldn’t panic amongst the talks of a recession. 

If you’re careful about your finances and plan for the future, this could put you in good stead to be in a favorable situation when the market evens out.

You may need to be more cautious, but there could be opportunities to invest in high-quality assets at lower prices.  These will be beneficial for the future.

Here at Forth Action Invest, we are North-West property investment and development specialists who simplify the process at every stage. 

Chat with us here to learn more about exclusive and off-market investments.

*Please note this blog does not constitute investment advice. We recommend you conduct your own due diligence before making any investment, including seeking independent financial advice.