Tag Archives: capital-gains
18 year comparison index shows UK buy to let outstripping other asset classes
Buy to let in the UK over the past 18 years has provided average returns that outstrip those of other major asset classes, new research shows. Every £1,000 invested in an average buy to let property purchased with a 75% loan to value (LTV) mortgage in the final quarter of 1996 would have been worth £14,897 by the final quarter of 2014, a compound annual return of 16.2%. The same investment in UK commercial property would have grown to £4,494, in gilts or UK government bonds to £3,329, in UK shares to £3,119 and in cash to £1,959, according to the research from buy to let lender Landbay. A buy to let purchaser buying entirely with cash would have seen each £1,000 invested grow to £5,071 by the end of 2014, a compound annual return of 9.4%. The report points out that 2014 was a good year for buy to let investors with property prices rising by an average 8.3% over the course of the year. The index shows that mortgaged landlords achieved average returns of 18.3% for the year, 81.9% of which was comprised on capital gains while the unmortgaged index achieved returns of 7.9%. The figures cover 18 years with a comparison from 1996 as this was the year the buy to let mortgage initiative was launched by the Association of Residential Letting Agents (ARLA) and buy to let mortgage lenders, opening residential rental property to ordinary investors. ‘The phenomenon of buy to let as an asset class only goes to underline the stable personal finances of landlords. The stability of returns shown in this paper underlines why this group of borrowers can be so attractive for lenders. In fact the history of buy to let can be viewed as a history of opportunity for those offering the financial backing to landlords,’ said John Goodall, chief executive of Landbay. ‘However, the bigger trend underlined here is the democratisation of such investments, which started a generation ago, and is far from complete. Buy to let itself is only one example of this shift. Now new models of peer to peer finance can give access to the returns involved in lending to such industries. Since 1996 ordinary investors have been able to be landlords, but now in 2015, ordinary investors can play the role of the bank,’ he explained. The report includes an updated 10 year projection for buy to let returns assuming house prices rise 4% a year, rents by 2% a year and mortgage rates rise to 5.5% by 2022. The projections suggest that every £1,000 invested at the end of last year using a 75% LTV mortgage would be worth £2,874 by the end of 2024, an average annual return of 11.1%. The corresponding annual return for an unmortgaged investor would be a more modest 6.1% but not far short of the rate of return from equities over the 1996 to 2014 period. ‘If these projections prove to be broadly… Continue reading
Positive outlook for sales and lettings markets in south and east London
The sales and lettings market in the South East of London are set to be buoyant in the coming months due to high demand, according to a new analysis report. There has been a notable migration of buyers from parts of North and West London setting up home in the Royal Borough of Greenwich thanks to it being comparably good value for money, according to the report from JLL. The associate director at the firm’s Blackheath office, Graham Lawes, said that this, coupled with high local demand, is fuelling the prices and momentum is set to continue throughout the year. ‘For City workers, the accessibility to Canary Wharf is a huge attraction. Young professionals and high earners are drawn to the area thanks to the addition of new boutiques, high end restaurants and bars opening in the historical borough. Families are also attracted to the Royal Borough thanks to its excellent local schools with impressive Ofsted reports,’ he explained. He pointed out that it is widely regarded that parts of the South East of London will see prices rise beyond the national average and that there is a huge disparity from one side of London to the other. The imminent arrival of Crossrail will add to this. ‘Blackheath and Greenwich will continue to attract interest but I anticipate Lewisham (SE13) Charlton (SE7), Woolwich (SE18), Plumstead (SE18), and Abbey Wood (SE2) to see the largest growth percentages over the next year as properties there are excellent value,’ added Lawes. The area’s rental market has also been strong, according to Charlotte Russell, assistant lettings manager of JLL’s Greenwich office. ‘This year, the rental market in Greenwich and Blackheath has been particularly strong for one and two bedroom properties. These properties have achieved up to 18% increases in rents year on year in some areas, largely due to relocation for employment into Canary Wharf and the City,’ she said. ‘Such relocations have positively impacted the rental market, particularly now that Greenwich is offering riverside developments to match Canary Wharf, and this has increased both the popularity of the area and spectrum of tenants. Additionally, we are seeing more people staying in their properties longer term with minimal void periods between tenancies,’ she explained. Looking ahead to spring, the firm anticipates that the rental market will remain buoyant, particularly going in to the warmer months, when tenants prefer to move with riverside living likely to remain popular with potential tenants. ‘We hope that new developments such as Platinum Riverside, Greenland Place, Peninsula Tower, and the ever growing Royal Arsenal Riverside in Woolwich, will keep the market in good supply as the demand increases,’ added Russell. In the City and East London property sales market there is likely to be a focus on what happens with Canary Wharf with the estate being sold to a Qatari led bid and planning passed to develop Wood Wharf. But in the… Continue reading
Landlords warned not to rely on good capital gains in UK buy to let sector
Landlords’ confidence in capital gains has almost trebled over the last two years, according to the leading landlord association in the UK. It has risen from 18% to 52% over the last two years but the survey by the National Landlords Association (NLA) also shows that 32% of landlords say they might not be able to meet their mortgage repayments if interest rates were to rise in the near future. Despite the survey findings the NLA is talking down capital gains prospects and has warned against relying on capital gains as a primary investment strategy. The warning comes after the Financial Times recently reported the estimated capital growth of private rented housing stock to be of £177 billion over just the last five years. ‘It certainly feels like a great time to be looking at buy to let a means of additional income but you cannot simply rely on the prospect of capital gains as an investment strategy,’ said Carolyn Uphill, NLA chairman. ‘A lot is being made of capital growth but landlords must remember they are in the business of providing homes for people. It’s a risky investment and the prospect of capital gains is only realised if and when the property is sold,’ she explained. ‘With house prices levelling off and inevitable rises to interest rates as the economy improves, anyone considering investing in buy to let should think carefully before taking the plunge. This means planning for the long term and looking to sustainable yields, not hoping for a windfall in capital appreciation,’ she added. The news comes as the NLA launches the second part of its latest campaign; Rent, Risk Resolve, which aims to highlight the potential risks of rising interest rates. To accompany the campaign the NLA has produced a guide on how to prepare for rising interest rates. Continue reading
