Newsletter 3
Hot Topic - Rental Income on the up as property values fall...
As a leading buy-to-let mortgage provider for Landlords, Paragon compiles a monthly index. Below are the main findings from their May Index:
“Investment property values have begun to follow the trend of the wider market and cooled slightly in April. The UK average is down 0.5% from March to stand at £190,266.“
IJ - Obviously, properties in London give a disproportionate balance to this, with the average London rental property value being £367,838.
“Terraced houses achieved the highest yields in April (6.9%), followed by detached properties (6.6%), semi-detached (6.5%) and flats (5.7%).”
IJ - Many investors will have purchased off-plan new build properties, many of which have large incentives at purchase stage and new build flats are now coming under intense downward price pressure. This serves to highlight the care that needs to be taken when buying to let and following new trends may not always out-perform traditional rental strategies.
“Rental Incomes continued their upward trend in April to stand at an average of £1,004 pm. The rate of growth has cooled slightly from March but remains high at 13.8% annually and 3.8% over the quarter.”
IJ - With the cooling in house purchases, more people will be looking to rent, which should support and indeed increase potential for rental increases. However, care should be taken to ensure that you account for only 10 or 11 month’s rental income per annum (allowing for void periods), budget for any property maintenance and the possibility of rogue tenants. The market is currently very strong, however, there is the possibility of a flood of rental properties coming on to the market as many rental guarantees end, giving downward rental price pressure, particularly on provincial city centre new-build flats.
“Yields remained stable at 6.3% for the fourth consecutive month but are up0.2%on April 2007. The average property purchased 12 months ago has generated an overall return of 16.0%, taking into account of both capital gains and rental income.”
IJ - Whilst these figures are extremely positive, they are time lagged and will look less positive in the coming quarters. However, there is still a place for buy to let investment properties as part of a diversified investment portfolio.
Please do Contact Us if you are considering purchasing a rental property and we can provide you with a buy-to-let illustration.