Buy to let economics What does the future hold? Kate Faulkner BSc (Econ) MBA CIM DipM www.propertychecklists.co.uk www.designsonproperty.co.uk
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Agenda What s happening in the UK economy at the moment? How does the economy affect buy to let? What s happening now in buy to let economics? What s likely to happen to future buy to let economics? What can you do to protect and grow your business?
Guardian Recession Tracker
It s all a bit flat Potential triple dip recession Q1 2013 (ONS) Olympic spike
People and money
Population 63 million on census night, 2011 50:50 men, women +7% 2001 and 2011
Unemployment Unemployment at 7.8% Q4 12 versus Unemployment at 5.2% Q4 05
Full time versus part time Largest annual rise in full time employment since 2005
Self employment on the up 38% work from home
Disposable income Prices have risen faster than wages since 2009 Growth in wages: +1.3% Q4, CPI +2.7%
Inflation
Interest vs mortgage rates Interest rates 0.5% since 5 th March 2009 Mortgage rates depend more on deposit:- Big deposits 40% Small deposit 10% Five year fix for 2.99% 4.24% Two year fix for 1.99% 3.59% Tracker 2.38% N/A http://www.thisismoney.co.uk/money/mortgageshome/article-1687576/what-mortgage-rates.html
The way people
More people living alone
How people live in homes 57% rent privately (PRS) - up to 25 years 45% PRS 25-29 21% PRS 30-44
So what?
Buy to let economics matter What s happening economy Make or break your property investment Since credit crunch house price values fallen
Since the credit crunch. East Midlands rents have remained flat Source: Belvoir Lettings Index www.belvoirlettings.com
On average BTL investors in the East Midlands have lost. Average property in 2007: 147,500 Keep up with inflation 2012: 173,300 Actual average in 2012: 121,000 Average rents are down versus inflation 2008: 597 per month 2012: 676 per month to keep up with inflation 2012: 586 per month 90 per month less than it should be!
BTL does go wrong
Where BTL fails
Check if your portfolio is delivering Which properties/areas deliver on capital growth versus yield? Since the credit crunch most areas are divided into one or the other For example: Nottingham The Poplars, West Bridgford Average sold prices 2013: 129,000, 3% 2007: 125,000, 15% 2005: 109,000, 98% 2000: 54,950 Woodside Drive, Arnold Average sold prices 2013: 80,000, -16% 2007: 95,000, 1% 2005: 94,000, 81% 2000: 52,000 Yield 5.6% Yield 7.5%
What s the future outlook?
Depends. On the area you invest in Capital growth versus income On the type of investment HMO versus penthouse apartment Whether you put in cash or leverage Covering cashflow versus returns What s happening in the local economy..
Population = demand for property +16% change all ages +23% for over 65s Relatively young population vs other areas
Household growth England +27% E Mids +29% Estimated growth in one person households
Unemployment/Employment
Wages
House price and rental growth Estimated house price growth to return end 2020s Rental growth to return when wages increase more than inflation 5-10 years before investment starts to offer some good returns Biggest economic threats to your portfolio Interest rate rises influencing mortgage rate rises Inflation rate rises faster than rents/property prices
Other issues to consider Government and local authorities Increased taxes on property investors Increased licencing Increase in new build Better deals for current renters through firstbuy Costs of energy efficiency Other trends Tough to get deals By 2014 more people will own their own home than have a mortgage Average time to live in a property: 25 years versus 8 years in 1980s Potential new rental market over 65s 4/5 bed homes same price as 3 beds?
Is BTL still worth it? Absolutely BUT:- Force capital growth Build to let Track your investments versus your objectives Consider leveraging versus cash Wealth management Make sure your rental income increases with inflation Renting to specialist market Home workers? Over 65s? Disabilities?
Visit Stand 15 Provide independent information to help you carry out property projects Buy to let, making money from property Buying, selling, renting, letting your home Self build, renovation, maintenance Free services:- www.propertychecklists.co.uk www.designsonproperty.co.uk Discounted services:- Buy to let guide, Making money from property Normal price BTL guide: 59.95, show price 49.95 inc VAT