Is Now The Best Time For Buy To Let?
“Investors pile into buy-to let” was the headline in an article written by The Sunday Times last year. Good rental yields and rents expected to rise by 18% over the next 5 years across the country were two of a number of reasons given to fuel the demand. More than one in eight mortgages is now a “land lord loan” – the highest on record, according to the Council of Mortgages Lenders recently. With this shift to BTL and potentially many other factors driving the case for BTL now, we believe that the answer to the title question is simply that…..
Some Key facts supporting buy to let property investment.
“Rents expected to rise by 18% over the next 5 years”
“More than one in eight mortgages is now a “land lord loan”
Buying to let is dependent on 2 interrelating considerations:
What do you want your BTL property portfolio to achieve (with the resources available to you).
Is the location you are investing in going to deliver your goals?
As an example to illustrate the above points, if your goal is for capital growth then there is evidence to support a case for buying in certain boroughs of London where growth is strongly forecasted. The “pay to play” (money required to buy these properties) is generally higher than other areas and will require larger deposits just to cash flow neutral. By contrast buying affordable single let residential property in deprived regions of the UK may provide better rental yields (some double digit) however the exposure to capital growth may be significantly less than in more buoyant locations. So much depends on what you want and the location…
SO WHERE ARE WE NOW: A NATIONAL VIEW:
The UK property market is cyclical (can take 20 years to cycle). The 6 broad stages of the property cycle are:
1) Boom: (Quarter 4 2007 was seen as the top of the market)
4) Bottoms out: (Good time to buy!)
5) Rises: (Hold Tight!)
6) Hot: (Sell!)
What do the papers say:
The UK housing market is showing signs of its first significant revival since the credit crunch nearly six years ago according to an article from the BBC Business News Online February 12, 2013. Mortgage lending picked up last year led by a big rise in first-time buyers, according to the Council of Mortgage Lenders (CML). The CML said the number of first-time buyers rose by 12% to 216,000, the highest number since 2007. Separately, the Office for National Statistics reported that UK house prices rose by 3.3% last year.
Office for National Statistics reported that UK house prices rose by 3.3% last year.
HOUSE prices are booming in Britain again with the fastest growth for three years according to an Article by Sarah O’Grady of the Express. February 7, 2013
More than £3,000 was added to the value of homes in the three months to January which experts say is a sign the economy is recovering. The Halifax, Britain’s biggest mortgage lender, believes the rise shows that Government efforts to boost lending are a success. The cost of a typical home stood at £162,932 last month – up £3,619 or 1.9 per cent from October.
Bank of England gets sweeping powers to prevent next house price bubble was an article by Phillip Inman of The Guardian January 15, 2013. Financial policy committee details new powers as RICS predicts house sales will jump in 2013 as prices stabilize. The Bank of England is to be given sweeping new powers to prevent house prices spiraling out of control, amid predictions that a year of stable house prices in 2013 will spark resurgence in home buying.
The Royal Institution of Chartered Surveyors (RICS) predicts the number of house sales will jump amid resurgence in confidence that prices will stabilise and believes they may even start to move up towards the end of the year. The organisation made its predictions as the Bank of England provided details about how it would use new powers to burst burgeoning economic bubbles by forcing banks to hold more capital…
On the face of it, at a national level the press seems positive about the outlook which may suggest that now is indeed the time to get in. However the really useful and meaningful insights come from understanding the regional variations or specific facts for a given town/city for investment. Which is where further information is needed to answer the title question.
SO WHERE ARE WE NOW AT A REGIONAL LEVEL:
Research conducted by The Oxford Institute of Economics was covered in a national paper which headlined “economic recovery in the UK depends where you are living”. As an investor this information could have a bearing as to whether you invest in one region over another. According to the article “Towns and cities in Britain’s most deprived areas have no hope of economic recovery for nearly a decade”. For Fossey Taylor, we would not want to invest in an area where the prospects were bleak (i.e. no industry, few major employers, no regeneration, declining populations etc) especially as there are areas with a supply of affordable housing where it is still possible to buy with a discount, achieve good yields and be exposed to capital growth. Below is a list from the article that shows when each region in the UK would be likely come out of economic recession:
- East Midlands: Now
- London: 2014
- South East: 2014
- South West: 2015
- Scotland: 2015
- Northern Irelands 2017
- North West 2018
- Yorkshire: 2019
- West Midlands: 2020
- Wales: 2020
- North East:2020
“Towns and cities in Britain’s most deprived areas have no hope of economic recovery for nearly a decade”
Savills provide a very insightful quarterly residential report (available to download from www.savills.com/research. Of particular interest is a table which forecasts the annual capital growth of each region in the UK for the next 5 years. Our goals are predominantly centred around cash flow and creating equity however if there is an opportunity for capital gain we’ll take it! J
SO WHERE ARE YOU NOW AT A REGIONAL LEVEL:
Whilst national and regional insights are very useful, what ultimately counts is what is happening at a micro level i.e. in your chosen investment city, towns and even streets. To answer this requires specific local knowledge which can be gained from understanding employment levels, regeneration initiatives in infrastructure, new businesses, employers, population demographics and growth etc (much of this information can be easily found out by speaking to the local council and googling).
For our own goals we believe confidently that now is THE time to buy.
IF your chosen location for investment supports your property business goals, then now may be the right time to get into BTL. If you get it right this has to be the ultimate business to be in: a product that everyone needs, with more demand for your product than supply (growing population PLUS housing shortage in UK), cashflow (!), where forecasts suggest customers will pay 18% more over the next 5 years to rent your product, you get to keep the product (and prices are going up) and you can systemise the business so that you work on it but not in it. PLUS… now is possibly the cheapest time ever to borrow money to start up the business… Now is the time…
Fossey Taylor provide a Property Portfolio Builder service, which saves you time and makes you money by building and managing a property portfolio that you could retire on. There are limited places available at their discovery days in April and May. To find out more please reserve your place at www.fosseytaylor.com, email firstname.lastname@example.org or call 0115 824 84 84.