Whether it will be worth while for you will depend upon what you want to achieve. Most investors buy property for:
- Income; or
- Capital appreciation; or
- A combination of the two.
What you want (or need) will determine the type of property you buy and where you buy it. As a general rule, you will achieve greater capital appreciation, but lower rent returns, by buying in areas popular with owner-occupiers.
Conversely, you will achieve higher returns from rent, but lower capital appreciation, in areas popular for renting.
Whichever strategy you adopt, for buy-to-let investing to be successful, you will need to make a plan to find the right property in the right area, and one which will let easily and at a rent sufficient to cover costs.
Successful buy-to-let investors need to:
- Buy properties in areas popular with tenants;
- Be realistic in setting rents; and
- Keep their properties in good condition to maintain rental values, and keep them attractive to current and prospective tenants.
Buying the right property in the right area needs careful planning and research of the market (I go into a lot of detail on this and related subjects in The Successful Property Investor’s Strategy Workshop www.StrategyWorkshop.co.uk).
According to Paragon Mortgages landlords achieved an average yield of 6.3% in 2012.
“Landlords in the North East achieved the highest average yield in 2012 at 6.6%, followed by landlords in the East of England with an average yield for the year of 6.5%.
The London rental market has remained strong throughout the past 12 months, with tenant demand reaching new peaks in the capital. The average yield achieved by landlords in London (central) in 2012 was 6.4%.
In Q4 landlords in the East Midlands reported yields of 7.5%*, followed by London (central) with 7.0% and landlords in the North West taking third place with an average yield of 6.8%.
Typically, the average yield a landlord generates gives a good indication of how their property portfolio is performing in the rental market.
Average rental yields in Q4: Region & Average yield
|East of England||6.5%*|
|Yorkshire and Humber||5.0%*|
*Small base-directional only
The long term performance of UK property has been steady. According to research published by Halifax in June 2012, reviewing the property market for the Diamond Jubilee:
House prices across the UK have nearly trebled over the past 60 years, increasing by an average of 186% in real terms1. Prices have risen at an average annual rate of 1.8%, slightly faster than the 1.6% per annum average rise in real earnings over the period.
House prices in the 1980s recorded their biggest increase with a real rise of 42% between 1981 and 1991; greater than the increase of 30% over the last ten years. The worst performing decade was the 1950s when house prices declined by 7% in real terms.
UK housing market has become highly cyclical since the 1970s. Notwithstanding the decline in the 1950s, house prices were relatively stable in the 20 years to 1971 with annual growth averaging just below 1% (0.9%). There have since been four periods of rapid real house price growth: 1971-73, 1977-80, 1985-89 and 1998-2007. Each period was succeeded by a substantial drop in real house prices. The most recent housing boom – which lasted ten years – was by far the longest period of rapidly rising house prices.
Over the last 60 years, the average UK house price has increased 7,278% in nominal terms from £2,200 in 1951 to £162,338 in 2011. This is three times the rise in retail price inflation over the same period (2,477%).
UK House prices have risen in real terms in nearly two out of every three years – 38 out of 60 – since 1951.
Past performance is no guarantee of future performance but the UK property market has been through downturns before and has always recovered and come out ahead.
There’s no reason why this shouldn’t be the case this time either although it is impossible to give any clear ideas on timings.