We got through the Global Financial Crisis by working together and we’ll get through Coronavirus, too
There’s been a lot of focus on the need for the UK to come together and support each other as we look to slow down the Coronavirus infection rate and ‘flatten the curve’.
And it’s true: People are better when they work together, whether that’s to mitigate the health effects of COVID-19 or the economic impact the virus is having.
Economically at least, we’ve been through an emergency like this before.
In 2008, just months after Platinum Property Partners was founded, we were faced by the gravest financial crisis since the Great Depression of the 1930s.
The 2008 Global Financial Crisis
Mike Dixon became Platinum’s 10th Franchise Partner in 2007 alongside wife Carol and was immediately sold on mixing property with franchising.
Six months later, their plan to buy eight Houses in Multiple Occupation (HMOs) in their first year was “thrown out of the nearest window”.
“We completed on our first property in February 2008 and were due to complete on the next two in March when Bradford & Bingley followed Northern Rock down the pan,” reflects Mike.
“We’d had a few warning signs, but it only really started to affect us when Bradford & Bingley went under because they owned Mortgage Express, who were our lenders.
“The two houses were part of a development of four and because I was buying two of them, I was getting a really good deal.
“Suddenly the only mortgages available required a far lower loan to value percentage and that left me £50,000 short.
“But I still believed that what we were doing was right and I borrowed the money from an associate so I could complete on both houses – buying only one wouldn’t have worked because the price would have rocketed.
“A month later the crash had really bitten hard and all of the Franchise Partner business plans were essentially thrown out of the nearest window.”
How we emerged from the crisis
It was a small hotel, just outside Reading, where Platinum’s contingency plan was put into action with its now 20-strong staff and Franchise Partner team.
“It felt a bit like the war cabinet,” recalls Mike, “although we were all quite buoyant and upbeat. In some ways, despite everything, it was exciting because it was a challenge and we were all in it together.
“We were contracted to buy at least four houses in that first year with Platinum, as that was how the franchise worked back then, but that was reduced to two in 2008 and then none in 2009 – we were given a complete holiday from buying so we could consolidate what we had and protect the cash, tenants and income we had.
“Of course, the situation we were in wasn’t what we’d signed up for, but there was no blame game – we worked together to come out of it and that’s the beauty of a network like that.”
Comparing 2008 and the Coronavirus crisis
While there are obvious economic comparisons to be made between the 2008 crisis and the Coronavirus pandemic, there are key differences for landlords and property investors.
“Normally I would say ‘you guys have it easy compared with how we had it in the 2008 crash’ but the effect of Coronavirus is completely different,” insists Mike
“What happened in 2008 meant all of our business plans were torn up due to changes in lending criteria, but you could still buy property, and a lot of it much cheaper, as long as you were happy to pay more towards the purchase price.
“What’s happening at the moment is more a case of landlords’ plans being put on hold and that’s mainly due to the fact that the logistics of buying property are difficult with the whole country isolated and essentially in lockdown.
“But it feels more like a freeze rather than a longer lasting change like it was in 2008.”
Advice for landlords
Existing landlords, Mike concurs, should look to consolidate what they have – just as Platinum’s Franchise Partners did in 2008 – and work with their existing tenants to protect them as much as safeguarding their own incomes.
“In a six-bedroom HMO, three filled rooms paying full rent will usually mean you can break even,” says Mike.
“So, that protection of income along with the government’s pledge to help with rents and employee salaries, and give property owners mortgage holidays, should all help HMO landlords and tenants weather the storm.
“And once the property buying logistics are back up and running, like lenders being able to get out to do valuations and conveyancers being able to do their side of the purchase process, it should be a good time for investors to buy – particularly HMOs.
“Interest rates are low and there should be some deals to be done on certain properties.”
The benefits of HMOs for you and your tenants
Investors looking to buy properties to convert into shared living homes could also find an increased demand for great quality rooms from tenants who may be looking to reduce their rental costs compared with single tenancies, but still want good quality accommodation.
“You’d expect, potentially, there to be more people moving from city to city to secure jobs, too, and many of those workers will be looking to rent rooms rather than commit to buying a home or to a long-term single tenancy agreement,” adds Mike.
“There’s an important social element to providing people with high-quality shared living homes, too.
“With the UK currently on an effective lockdown and almost everyone being at home, the need to surround ourselves with others will be hugely important once we’re out the other side and shared living can really help with that.”
