There’s currently much talk of what will happen to the rental
property market following Brexit. To judge that, I believe we must look at what
happened in the 2008/9 credit crunch (and what has happened since) to judge
rationale and methodically, the possible ramifications for long-term investors
in the Aylesbury property market. You see, an important, yet overlooked measure
is the performance of rental income against house prices (i.e. the resultant
yields over time). In Aylesbury (as for the rest of Great Britain), notwithstanding
a slight drop in 2008 and 2009, property rentals have been gradually
increasing.
The income from rentals has been progressively increasing over
the last 12 years. Today, they are 22.6% higher than they were at the beginning
of 2005. In fact, over the last five years, the average growth has been 2.4%
per annum. From a landlord’s point of view, increases in average rental
income are not to be sneered at. However, the observant readers will
be noting that we are ignoring an important factor – our friend inflation.
Turn the clock back to 2005, and we
have a property being rented for say £900 a month and that is still being rented at
£900 a month today, in Spring of 2017. While the landlord is not getting any
less income, this £900 is no longer worth as much. Let me explain, in 2005, £900
may have bought a two-week 4* holiday in Italy. Yet, holidays have increased in
line with inflation (which has been 38.5% since 2005), so our holiday would
cost today £1,246 (£900 + 38.5% inflation
= £1,246). Therefore, the landlord could no longer afford the same holiday,
even though having the same amount in pound notes from their rental property.
This means when we compare rents in Aylesbury to inflation since
2005, Aylesbury landlords are worse off today, when they receive their monthly
rental income, than they were in 2005 by 15.9% in real terms (rents increased
by 22.6% since 2005, less the 38.5% inflation since 2005 – net affect 15.9%
drop)
However, rental income is not the only way to generate money
from property as property values can increase (capital growth). Although in the
short term, cash flows are diminishing, many Aylesbury landlords may be content
to accept that for an increase in capital value.
Property values in Aylesbury have risen by 62.7%
since 2005
This equates to a 5.22% per annum increase over the last 12
years. This includes the 2008/9 property crash and will make those Aylesbury landlords
and investors feel a little better about the information regarding rents after
inflation.
The prospects of making easy money on
buy to let in Aylesbury have diminished, when compared to 2005. Last decade,
making money from buy to let was pretty straight forward.
It would be true to say, my rental income versus property prices
research does lead to noteworthy thoughts. I am often asked to look at my
landlord’s rental portfolios, to ascertain the spread of their investment
across their multiple properties. It’s all about judging whether what you have
will meet your needs of the investment in the future. It’s the balance of
capital growth and yield whilst diversifying this risk.
If you are investing in the Aylesbury property market, do your
homework and do it well. While some yields may look attractive, there are
properties in areas that do not have the solid foudations in place to sustain
them. If you are looking for capital growth, you might be surprised where the
hidden gems really are. Take advice, even ask your agent for a portfolio
analysis like I offer my landlords. The majority of agents in Aylesbury will be
able to give a detailed analysis of past and anticipated investment opportunity
(especially the effect of inflation) on your portfolio. However, if they can’t
help – well, you know where I am, the kettle is on!
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