As an investor considering what’s important, return is at the top of list.
With some of our landlords achieving 27.5% return, why wouldn’t you look at getting into buy to let?
Firstly, it’s a long-term project. Those landlords mentioned above bought their properties in the late 1990s/early 2000s. Since they have been working with us for the last 18 years, we have also made sure that the rental has kept in line with the market forces. Given that our average tenancy is 46 months, people are staying in their homes.
How are rents affected by the market?
You only look at one sum: supply v demand.
We are seeing several landlords exit the rental market – in the main due to recent mortgage increases. As reported before, Rightmove stats show that the number of properties coming on to the market are down by 37% year on year. This is in comparison with 117% more people applying for properties. To give you an example: a typical two bed cluster was on the market for £895 pm – we received 39 applications!
So, it really is not surprising that rents are increasing. Annually we have seen an average rental increase of 8.34%. Pre-pandemic this figure was between 3% and 5% for existing tenancies.
Where landlords have chosen to refurbish at the remarking stage, we have seen anything from £250 to £375 increase on the rent achieved previously.
The only element that will slow rental increases is affordability. The average household salary in our area is between £50,000 and £54,000 which certainly covers the average rental of around £1200 per month.
Is anyone actually buying properties to rent out?
Yes, but in the main, existing landlords are looking to extend their portfolio more than new landlords entering the market.
I expect that is due to the changes in the mortgage market. If you don’t understand how buy to let works, as a newbie you need a lot of confidence to see how it would work for you. More experienced landlords don’t need to be told this, they can see it in action.
Figures show that 68% of landlords own a buy-to-let with some sort of finance. Therefore, whilst mortgages are high, rents will follow suit.
Although we are not in sales, we have seen some landlords, (who had historically decided to sell) come back to the rental market – mainly as the property did not achieve the expected price. This means one thing – it is a buyers’ market. Therefore, you need to negotiate if you are looking to buy.
Given the rental that can be achieved, we are still seeing gross returns of 5 – 6 % for our newer landlords.
What do the pundits say?
New forecasts based on the Land Registry House Price Index, suggest average property values will have fallen by 7.4% when accounting for inflation by the end of this year. That compares to real terms falls of 10.6% in 1990 and 16.5% in 2008. QED – it’s not as bad as the financial crash of 2008 and Armageddon does not seem to be around the corner.
As mortgage rates gradually fall and households benefit from real income growth, some forecasters expects price falls to stop in 2024 and start to increase by 2025.
New house supply?
As net housing supply in England is set to fall to decade lows, supply and demand will definitely be playing a part in keeping rents high.
New analysis by the Home Builders Federation (HBF), suggests the number of planning permissions being granted across England for new build houses continued to fall sharply during the second quarter of the year. This is a 20% annual drop.
And what about the 250, 000 homes that Mr Gove announced in July under the ‘closely guarded secret plan’ called Cambridge 2040?
Various words have been attached to the announcement including ‘ludicrous’, ‘stupid’, and many others. The main point of concern does not seem to be where the house will be built but how enough water will be supplied to the developments.
Also, that fact that the local council or local MPs had not been consulted on the plan may mean that it is a wonderful sound bite.
We are in an amazing area. Our economy is based upon high-tech which is in growth. We have a new station planned in Cambourne to eventually connect to Oxford. We have ‘Cambridge 2040’ as a plan at least in principle – there are a lot of things happening in our area.
As a landlord I know the pitfalls as well as the benefits. The main point is that buying an investment property has to be right for you. Why not book a free 30 minute chat to see if it’s really for you?