Investors combat poor returns with buy-to-let to beat inflation
Investors have been piling into property to benefit from inflation-busting yields and record benefits increasing the amount of first-time landlords by 20%.
Data from Paragon, a buy-to-let specialist lender, has estimated just over 29,000 landlords entered the buy to let market for the first time last year. This is 19% more than 2011 and a whopping 80% more than 2010. The figures are based on a survey of brokers and data from the council of mortgage lenders, the trade body. Landlords also account for more than one in 10 new mortgages.
Rents also continued to climb last month and hit record levels in London and the South West including North Bristol, a market in which Edison Ford Property Management specialise. The average rent in London is now a huge, £1,106. This was up by 7.9% since last year, Compared with £735 for England and Wales, up by 4.2% over 12 months. Making it is quite easy to generate gross yields of up to 6.5% in the south west by choosing the correct properties and the right areas.
If you have your money in the building society or bank and you are earning less than inflation then in reality the true value of your money is being eroded i.e. it will buy you less in the future than it will today. Buy-to-let is looking increasingly attractive to investors, as opportunities to find returns that beat inflation dwindle using traditional savings facilities. The average rate on tax-free cash Isa is 1.82%, down from 2.65% a year ago, according to Moneyfacts, a financial data firm.
The return on investment properties can exceed inflation just based on rental income alone and any capital growth as a result of house prices going up will contribute to your overall return.
House prices grew 1.9% in February compared with the previous year, while prices in London were up 5.9%, according to figures from the office for national statistics, boosting total returns on buy-to-lets.
The total annual return, including rent and capital growth, on a buy to let property rose to 6.3% in March, compared with 4.5% the previous year. However, investors need to be careful and take into account that buy-to-let can be a lot of work. According to recent statistics, 8.5% of all rent was in arrears last month. Mike Ford, a director at Edison Ford said: “It is important that prospective landlords understand that investing in buy-to-let property is a long-term investment – They should fully understand the prospective risks of being a landlord and employ the services of a company used to operating in this marketplace until they feel confident of going it alone.”
He also points out, if you are worried about your rental being paid on a regular basis it is possible to insure your rental income and protect yourself from unexpected costs from problem tenants.
Can I get a mortgage?
According to the Council of Mortgage Lenders, There were 136,900 buy-to-let mortgages approved in total last year. This was an improvement from 2011 where it was at 121,500. Landlord mortgage rates have been steadily falling in recent months.
If you’re looking for mortgage funding or would like advice on buying an investment property, please do not hesitate to call one our Letting Managers or alternatively, speak to Mike Ford on 01454 316718 or email Mike firstname.lastname@example.org.