Given the spiralling cost of raw materials and labour post-Brexit, higher interest rates and the more punitive tax regime, many industry professionals have hailed the days of the amateur property flipper as “over”.
In light of this shifting perspective, Newspage asked property and financial services experts their thoughts on the future of the trend.
Jamie Alexander, mortgage director at Alexander Southwell Mortgage Services, said: “The surge in material, labour and mortgage costs has made many property flips unappealing on paper, leading the average flipper to put a firm brake on future activity.
“Moreover, with the uncertain state of house prices this year, potential buyers may choose to hold off on purchases until prices drop further or until they can accurately predict the market’s behaviour to avoid potential resale price losses.
“Despite these challenges, we have still seen a few investors purchasing properties to flip. Those that we’ve dealt with believe it’s still worthwhile because they can complete much of the work themselves, keeping renovation costs to a minimum.”
He continued: “The more practical and hands-on you can be in a flip, reducing the need for tradespeople, the more profitable it often is.”
Adam Smith, founder at Alfa Mortgages, also added: “If I had a pound for every time I’ve heard someone claim they’ll be a property millionaire in just three months by flipping houses, I would be lounging on a beautiful beach in Barbados by now.
“Unfortunately, this get-rich-quick mentality is a relic of the 1990s, perpetuated by flashy property courses that promise more than they can deliver.
“In reality, flipping properties is a complex and difficult business that requires significant knowledge and trade skills to be successful.”
Smith concluded: “Without these essential skills, the costs of refurbishment can quickly spiral out of control, leaving slim, if any, profit margins for the investor.
“Furthermore, many people fail to consider the appropriate timescale needed to complete refurbishment work, leading to increased costs and further delays.”
Further reaction:
Jonathan Miller, director at 365ifa:
“We have seen a significant decline in property flipping but there are multiple reasons as to why this is the case. It’s not just about higher labour and materials costs.
“Housing is one of the most taxed assets in the UK. A combination of stamp duty at a higher level to purchase second property, income tax to be paid should you rent the property in the interim and the reduction in capital gains tax allowances on the disposal, has had a significant influence on activity levels in this market.
“Add onto this a significant increase in contract rates for refurbishments, and we are seeing many projects being put on hold until there is a reset in both labour and materials.”
Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial:
“Property flipping is firmly on hold. Not only are raw materials costing the earth, but property prices are still punitively high in many areas of the country, and those needing work aren’t going for much of a discount.
“That said, with the cost-of-living biting, house prices will fall and the cost of borrowing should reduce at the same time. In six months’ time, the cost of building products should also reduce meaning the autumn could be the season of change for property professionals and flippers might be able to turn a profit again.”
James Vince, managing director at Castle View Finance:
“With the rise of the amateur property investor over the past 20 years supported by numerous TV shows both in the UK and abroad, we have seen a rise in wannabe property millionaires.
“However, the real costs of property flipping, entry, renovation and exit are often under-estimated, with people falling foul of refurbishment costs and cutting corners to meet their budgets.
“We have seen experienced property ‘flippers’ taking on complex strategies like commercial to-residential, property title splits, heavily distressed auction purchases and direct-to-vendor. These are less attractive to the wider flipper community and, as a rule, require higher seed capital as well as a bigger team with wider expertise, including architects, brokers, solicitors and tax advisers.
“With 100% development funding and competitive bridging solutions to complement this area of the market, it certainly isn’t dead.”
Gary Bush, financial adviser at MortgageShop.com:
“Sadly the quick buying, refitting, modernising and selling of UK property stock has stalled due to the cost of building materials, borrowing costs, stamp duty, and the generally high level of property prices.
“We see some movement in the property auction side of these transactions, especially in northern areas of England where the prices are lower, however, the demand for the resales is respectively lower, seeing some developers also selling the flipped property at auction, which is not an ideal and controllable situation.”
Austyn Johnson, founder at Mortgages For Actors:
“Recently a client of mine tried out flipping properties. They are not in the trades and had to fund it themselves. They ended up selling for £5k profit.
“It can work, but really good planning is essential. The after works value needs to be researched thoroughly before purchase.
“If you can do some of the work yourself, that’s a bonus but if you need to use tradespeople, get the quotes written up before you buy. Know your numbers and you can make a profit. Wing it, and you will probably fail to get what you wanted.”
Ashley Thomas, director at Magni Finance:
“With financing, it is very important to get the best deal as it can make a significant difference in the profit.
“The rates for bridging finance, which is often used by flippers, vary from 0.55% per month to more than 2% per month. There is a very crowded market of unregulated bridging and development finance lenders.
“We have over 90 lenders in our contact list, so getting that right is key. This is when a good broker can be beneficial as they know the lenders to approach and can save borrowers a significant amount and even get them a higher loan.”
Mike Staton, director at Staton Mortgages:
“There’s always going to be a market for property flipping and I think we will see a boom in this part of the industry shortly.
“With many households struggling to make ends meet, we will inevitably see more repossessions, opening the door for property investors looking to make a quick turnaround and profit.”
Luke Thompson, director at PAB Wealth Management:
“Flipping properties can still be profitable but it is becoming more and more difficult to achieve a profit given the increase in the costs associated with refurbishing properties.
“But I would argue that the biggest impact has been house price increases in recent years. Sellers have become used to not having to accept offers below market value and this has meant that there are not many bargains around for investors.
“To make the figures stack up as an investor, ideally you need to be buying before the property reaches the open market and this is where having a good relationship with local estate agents can really help investors.”
