How are house prices affecting you as a landlord?
Which? recently wrote an article titled ‘taking the hype out of house prices’. The article suggested that since the pandemic, people’s views on the space they live in turned on a sixpence (small silver coin in circulation until 1980! Worth about 2.5p in today’s money). People wanted more space.
This has meant in the last 12 months to May, the average UK price rose by £32,000 (Office for National Statistics). However, the general feeling is that things may about to change. The main reason is put down to the increase in the cost of living. Because of the pandemic the then chancellor decided that a stamp duty holiday would get the housing market move if again – what it did was put it into jet propulsion and not in a great way.
How are the figures we see calculated?
Which? gave a clear explanation on how the figures we see are calculated:
- The official house price index is provided by Land Registry which is based on confirmed sale prices although it must be remembered that this has a two-month lag.
- In May the year-on-year calculated figure showed a rise of 12.8%.
- In June 2021 nearly 200,000 houses were sold in the UK. This was due to the rush to get
sales though before the stamp duty holiday came to an end. However, this boost on sales
started to cause a lack of supply. - In September 2021 mortgages were at their lowest, meaning that buyers wanted to buy but sellers
were not so sure. This in turn kept house prices high.
But now things are reported to be slowing. The reason? Increased mortgages leading to affordability constraints so even though there are less properties on the market compared pre pandemic, people are not able to afford them. Hence most pundits are predicting a flat market in 2023.
What does this mean to you as a landlord?
If you look solely at the price of houses, then you will most probably be doing nothing until next year. However, if you are considering investing in a buy to let, the main figure you need to be interested in is the return.
The private rental sector (PRS) accounts for around five million homes, or 18% of all properties in the
UK, therefore it is integral to both the UK’s housing needs and economy.
Due to the fact that rents have increased substantially in the last ten months it is still possible to
achieve 4-5% gross in the Cambridgeshire area. However, this excludes Cambridge City Centre where
returns are more likely to be 2.5 to 3.5 % – but you will most probably see a better capital growth
than the outlying villages.
The Deposit Protection Service (DPS) Quarter Two 2022 Rent Index recently reported the biggest quarterly rise in rental (2.47%) in their fifteen-year history; translating into an annual rise of 8.21% since Quarter Two 2021.
The last 12 months have also seen the four largest quarterly percentage rent rises on record. Rental affordability will always depend upon salary levels. In Cambridgeshire, due to our biotech industries, these have increased quite substantially over the last 12 months, as companies fight to keep good people. Tenants can typically pay on average between 35% and 40% of their salary on rent so as long as salaries increase, rentals will follow.
Due to the fact that as a country we do not build enough houses to cater for the population, house
prices will increase over a period of time. After the crash of 2007/2008 it did take about five years to get back on track, and since then they have been increasing.
More information
If you are thinking of selling it might be an idea to read my previous blog. Also take a look if you are looking to expand your portfolio to make sure that you are looking at the return and base offers around this.
If you want to find out what investment opportunities are out there. Just give me a call on 01480 494939.
