Contradicting property experts, the UK market remains positive
No one can dispute it’s been a tough couple of years for buy-to-let landlords in the UK. They have been buffeted by Brexit, mauled by mortgage interest tax relief changes, and stumped by stamp duty increases. But, despite all this, buy-to-let investment remains one of the best vehicles for passive income and capital gains. In the last week or so, buy-to-let investors have been reminded why they invested in property. Against expert predictions (again) house prices have continued to forge ahead, and rents are rising healthily, too.
House prices continue to defy gravity – and the experts
The average house piled on an average of almost £1,000 every month during 2017, according to ONS data released on 13th February. This brings the average house price in the UK to £226,756, after a rise of 0.4% in December.
We’ve lost count of the number of experts who have warned that house prices would tumble since the Brexit vote in 2016. There are certainly many with red faces. Even in London, where many said house prices would crash by as much as 20% or 30% in the immediate aftermath of the EU referendum shock, the average house price increased, though the rise – at 2.5% – was the lowest annual increase in the UK.
Of property types, semi-detached and apartments increased the most across the nation.
Why are house prices rising?
One of the reasons that house prices are still rising is that demand for homes hasn’t dried up as the experts expected it would. There hasn’t been the mass exodus of EU citizens living in the UK that had been predicted. Even the number of investors buying has cooled, but this slack has been more than made up for by record numbers of first-time buyers. In fact, according to lending body UK Finance, first-time buyer numbers hit a ten-year record of 365,000 in 2017 – more than 25,000 higher than in 2016.
Even Nationwide, whose own house price index also showed an increasing pace of house price growth, is surprised that house prices are still performing so strongly. On the release of its latest house price performance report, Nationwide’s Chief Economist Robert Gardner said, “The acceleration in annual house price growth is a little surprising, given signs of softening in the household sector in recent months… The flow of properties coming on to estate agents’ books has been more of a trickle than a torrent for some time now and the lack of supply is likely to be the key factor providing support to house prices.”
To recap, house prices are caught in a perfect storm of:
- Shortage of supply
- Continued demand
- Record numbers of first-time buyers
While these factors remain in place, it is difficult to see that house prices will do anything other than continue to move higher.
Rents rise by 2.4% over the last 12 months
HomeLet recently released data that showed rental prices in the UK have increased by an average of 2.4% in the year to January 2018. The average monthly rental is now £909. However, there are regional discrepancies. For example:
- In London, rents increased by 2.3% to £1,532
- In Northern Ireland, rents are up by 3.7% in the last year
- In the East Midlands, rents rose by 6%
- In the West Midlands, they were higher by 2.6%
As a national average, therefore, buy-to-let landlords benefitted from:
- An average capital gain of £11,208 in 2017
- Gross rental income now averaging £909 per month or £10,908 per year
Is buy-to-let investment still profitable?
When capital gain and gross rental is added together, the average landlord in the UK will have made a gross total of around £22,000 per property in the last 12 months. Not bad at all, especially for those landlords who have invested with a mortgage. The real return, remember, is made on your invested capital: a £60,000 deposit making a gross £22,000… where else could you get a total gross return of 36%?
We ensure that landlords get the best property management service, helping them to achieve their investment goals. To benefit from our comprehensive services for buy-to-let landlords, contact one of the Ezytrac team today on +44 01522 503 717.
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