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What a year on year increase doesn’t explain either is that if you bought a property back in 2007, before the credit crunch, property prices hit an all-time high. Prices in Kent for example, according to the Land Registry were, on average just over £200,000. They then fell to £167,000 by 2009, that’s a 16.5% fall – something everyone seems to have forgotten about in the last 12 months! And although prices did grow by over 10% in the last year, this was, in reality, property prices recovering to their previous heights. Today, according to the Land Registry, property prices are just £2,000 higher than they were in 2007 – six years ago. This doesn’t mean that buy to let isn’t a good investment though – quite the opposite. But, many people and property investment pundits think and give the impression that property investment is a ‘sure thing’ and it’s ‘easy’ to make lots of money. It isn’t and since the credit crunch, many buy to let investors have gone bust in spectacular style. To be successful at buy to let, you need to firstly understand the principles of investing in a property to let out. These are typically that you need to own the property for a long time – fifteen to twenty years and it’s wise to ‘gear’ your investment via a mortgage rather than buy with cash as it boosts your returns. Secondly, you need to understand how properties fair
from a price and rental perspective in the area you are looking to invest. To date, property prices in Kent have done well. On average for England and Wales, property prices have grown in value by just under 6% per year since 2000, but in Kent, the growth has been better at 6.3% per year, partly thanks to the location being so close to London. So from a long term property price growth, Kent has, in the past delivered well. But the forecasts are that prices will grow at a lower rate in the future, with the likes of Savills, Chestertons and Knight Frank forecasting house prices growing between 3-5% per year in the South East, not as good as in the past, but still healthy property price growth compared to other areas. From a rental income perspective, rents in the South East tend to varies from £800 to £1,000, which according to Your Move and Reed’s Rains Buy to Let Index, this gives a yield of just under 5%. The Belvoir Index which tracks rents back as far as March 2008, show rents in Kent are around £865 per month. This is giving landlords a healthy increase of 6% year on year - way above inflation which tends to be rare for rents. The best performing areas are Sidcup and Rochester. But as with property prices, this is really rents in recovery. Just like prices fell from 2007 to 2009, so rents in the area (and nationally) dipped in 2009 and 2010, ending up with rents in Kent now being about the same as they were at the start of the index in 2008.
LANDLORD INVESTOR February 2015
BUY TO LET ANALYSIS
time you take into account inflation, costs and then tax, that isn’t anywhere near the growth it initially suggests from an investment perspective.