Buy to let is a receiving a huge amount of attention at the moment. The idea of people cashing in their pensions under the new rules to invest their money in property or giving up on financial investment altogether to purchase property in the hope of better income returns.
And looking back at the stats for property in the Buckinghamshire area, this would look like a great place to invest. For those that invested in the area in 2000, average house prices were around £134,000 (source Land Registry). They have grown every year since then by approximately 5.6%, meaning, today, 15 years later, the average price is £291,000. And that’s just the increase in capital growth, on top of this a landlord would have profited from excess net income too.
The reason for buy to let delivering a good return is down to two things. Firstly you can “gear” the investment ie invest say a 25% deposit, which would have been £33,500 on a property costing £134,000. If the property was now worth the average £291,000, the returns, even after tens of thousands of pounds of costs for buying and selling, would probably look pretty good versus other financial investments which don’t allow you to borrow to buy a higher priced asset. Secondly you have the ability to rent the property out, which if you can do at a profit, excess income post taxes can help a geared investment deliver returns in excess of 20% versus just under 10% (source: ARLA) for those who invest with cash alone.
So, capital growth returns for buy to let overtime have looked pretty good in Buckinghamshire, but what has been happening to rental returns? According to Your Move and Reeds Rains, rental returns, on average are around 4.6%, just under the national average of 5%. And taking a look at the Belvoir Lettings Index which has been running since March 2008, rents are on average round £900 a month in the area, up 4% year on year. This is good news as many areas don’t see rents rise more than inflation (which averages around 3% a year), so as a landlord you should be seeing some positive growth in rents in the last year, albeit that rents have been tough to increase during the recession because of a lack of wage growth.
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Is now the time to buy in Bucks – or have you missed the boat?
Areas like London have in most places ‘already gone’ and some have seen 50% increases in property prices since the market lows of 2009. In Buckinghamshire, prices peaked at £276,500 on average in April 2008. They then fell to an average low of £228,500, a fall of 17.5%. Smart buyers (or lucky ones!) will have seen prices rise just a little bit since this time – around 5% over five years. This is a lot less than the normal 5.6% growth property prices have seen in the past – each year.
So what’s the prognosis? Well currently we are seeing prices rise around 10% year on year and in the past we’ve seen prices increase year on year to levels of 22%. So it looks like property, versus price heights of 2008 seen in Buckinghamshire, is still reasonable value for money and if you get on the ladder now, then prices should continue to rise for another year or so.
However, the downside to look out for, is that the government and Bank of England have made it pretty clear they want to see property price growth held back – especially to avoid people over borrowing via mortgages. As such we are entering a new era of uncertainty. In the past, we have seen prices rise pretty well because of expanding mortgage debt, whereas now we are looking at it potentially being held back.
This, together with the current ‘talk’ of property price rises slowing in London, Buckinghamshire in contrast does still appear to be seeing good growth in prices, according to the Land Registry data, however, the next few months will tell us if prices will continue to gain momentum or fall back as mortgage lending is tightened.
Read my Buy to Let Quick Guide
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