Ashford Buy To Let Annual Returns Hit 13.91% in Last 10 Years

Ashford Buy To Let Annual
Returns Hit 13.91% in Last 10 Years

Many Ashford people ponder where to invest their hard-earnt savings and the best piece of advice I can give you is to do your homework and speak to lots of people as much depends on your attitude to risk versus reward. Normally, the lower the risk, the lower the reward whilst a higher risk is normally associated with the possibility of higher returns, although nothing is guaranteed. At the same time, higher risk also means higher possible losses on your investment – yet if one looks at the bigger picture, the biggest threat to investing, predominantly when the investment is made in the short term, isn’t risk but volatility.

So where should you invest? Building society, the stock market, gold or property are all options. This article isn’t designed to give you advice – just to illustrate how different investments have performed over the last decade.

Let me start with the humble semi-detached house in Ashford … which in 2009 was worth £178,400 … so assuming I bought a property for that figure, I then looked at what if I had simply left the same amount of money in a building society, or invested into gold or the stock market…

Putting your money into the stock market (FTSE100) would have given a return of 30.2% on your capital over those 10 years and an average of 3.79% a year in dividends (making an overall increase of 74%).

Gold doesn’t pay interest or dividends – but has increased in value by 26.9% over the same 10 years whilst by leaving your money in the building society, the money hasn’t increased in value, but would have earned you interest of 24.46% or the equivalent of 2.21% per year.

Investing in an average semi-detached house in Ashford over the last 10 years has seen the capital increase by 60% (an equivalent of 4.81% per annum) and the income (i.e. the rent) has provided a return, based on the original purchase price, of 138.96% or the annual equivalent of 9.1% … meaning the overall return, based on the original purchase price of an average semi-detached property in Ashford, is 13.91% per annum.

Don’t forget, though, the great appeal of Buy to Let, in addition to the tangibility of bricks and mortar,  is the ability to leverage your capital – achieving those BTL returns may only have required £45,000 of a landlord’s own money – the balance financed via a mortgage at, historically, an incredibly favourable interest rate!

Notwithstanding No.11 Downing Street’s grab at buy to let landlord’s profits by hitting the buy to let sector with several fiscal punishments: a 3% stamp duty level, a decrease in high rate tax relief for landlords and an increase in rate of CGT on residential property profits, the facts remain that ‘bricks and mortar’ is still one of the pre-eminent and most consistent investments available.

The bottom line is, Buy to Let investment remains a mainstay of the British property market, serving to support aspiring homeowners as they work to conquer the, sometimes difficult, financial hurdles of home ownership.

With Central Government over the last 30 years only paying lip service to address the lack of new homes being built or tackling affordability on any significant scale, it is highly probable this will continue for the next 5, 10 or even 50 years as there will always be a call for respectable, and above all, honest buy to let landlords to deliver decent housing to those that need it.

Ashford House Prices v Ashford Rents since 2006

 

The Ashford housing market is a fascinating beast and has been particularly interesting since the 2008/09 Credit Crunch and subsequent property market crash. There is currently talk of a ‘property bubble’ forming nationally with Brexit seeming to be the ‘go-to’ excuse for every issue in the Country. Saying that, looking at both what we do as an agent, and chatting with fellow property professionals in Ashford, the market has certainly changed for both buyers and sellers alike (whether Ashford buy to let landlords, Ashford first time buyers or Ashford owner occupiers looking to make the move up the Ashford property ladder).

Ashford House Values are 0.24% lower than a year ago, and the rents Ashford tenants have to pay are 1.5% higher than a year ago

When we compare little old Ashford to the national picture; national property values have risen by 0.4% compared to last month and risen by 3.0% compared to a year ago, and this will surprise you even more, as nationally, property values are 19.8% higher than January 2015 (compared to 11.4% higher across the EU in the same time frame).

However, if we look further back…

Since 2006, Ashford House Values are 53.1% higher, yet the rents Ashford tenants have had to pay for their Ashford rental property are 26.4% higher

…which sounds a lot, yet UK inflation in those 12 years has been 42%, meaning Ashford tenants are 15.6% better off in ‘real spending power terms’.

Looking at the graph, the rental changes have been much gentler than the roller coaster ride of property values. I particularly want to bring to your attention the dip in Ashford house values (in red) in the years of 2008 and 2009 … yet as Ashford property values started to rise after the summer of 2009, see how Ashford rents dipped 6/12 months later (the yellow bars)…. Fascinating!

Ashford House Prices v Ashford Rents since 2006

So, a win for tenants and a win for homeowners, who are also happy with the increase in the value of their Ashford property.

However, maybe an even more interesting point is for the long-term Ashford buy to let landlords. The performance of Ashford rental income vs Ashford house values has seen the resultant yields drop over time (if house prices rise quicker than rents – yields drop).

Whilst, it’s true Ashford landlords have benefited from decent capital growth over the last decade –with the new tax rules for landlords – now more than ever, it’s so important to maximise one’s yields to ensure the long term health of your Ashford buy to let portfolio.

More and more I am sitting down with my Ashford landlords, and landlords currently with other agents, to carry out an MOT style check on their Ashford portfolio to ensure their investments will meet future needs of capital growth and income. If you don’t want to miss out on such a check-up, drop me a line – what have you got to lose? 30 minutes of your time against peace of mind….

Ashford Buy-To-Let Predictions to 2037

 

On several occasions over the last few months, I have noted that the rate of rental inflation (i.e. how much rents are rising by) has eased over the last year. At the same time I have seen that in some parts of the UK rents have actually dropped for the first time in over eight years. Recent research backs this up.

Rents in Ashford for new tenancies fell by 0.4% in the last 12 months (i.e. not existing tenants experiencing rental increases from their existing landlord). When we compare that current rate with the historical rental inflation in Ashford, an interesting pattern emerges ..

• 2016 – Rental Inflation in Ashford was 5.1%
• 2015 – Rental Inflation in Ashford was 9.4%
• 2014 – Rental Inflation in Ashford was 3.2%

Supply and Demand

The reason behind this change depends on which side of the demand/supply equation you are looking from. On the demand side (from the tenants point of view) there is the uncertainty of Brexit and the fact that salaries are not keeping up with inflation for the first time in three years. Critically this means tenants have less disposable income to pay their rent. As an aside, it is interesting to note that nationally, rent accounts for 29% of a tenant’s take home pay (Denton House).

On the supply side of the equation (landlords point of view) Brexit also creates uncertainty. However, the biggest issue was a massive upsurge of new rental properties coming on to the market in late 2016, caused by George Osborne’s new 3% stamp duty tax for landlords in the first part of 2016. This meant a lot of new rental properties were ‘dropped’ onto the rental market all at the same time. The greater choice of rental properties for tenants curtailed rental growth/inflation. A slight softening of Ashford property prices has compounded this. Figures from The Bank of England suggested that first time buyers rose over the last 12 months as some were more inclined to buy instead of rent. Together, these factors played a part in the ongoing moderation of rental growth.

The lead up to the General Election in May didn’t help: after all people don’t like doubt and uncertainty. So now that we have a mandate for going forward over the next 5 years hopefully that has removed any stumbling blocks stopping tenants making the decision to move home.

Population Growth

Whether it be ‘hard’ or ‘soft’ Brexit negotiations (and with the Election result the Tory’s might have to be ‘softer’ on those negotiations) the simple fact is, we aren’t building enough properties for us to live in. Both in Ashford, the South East and the wider UK, long-term population trends imply that rents will soon be growing faster than inflation again. Look at the projections by the Office of National Statistics in the chart below:

Tenants will still require a vibrant and growing rental sector to deliver them housing options in a timely manner. As the population grows in Ashford, and wider afield, any restriction to the supply of rental properties (brought about by poor returns for landlords) cannot be in the long-term best interest of tenants. Simply put, rents must go up!

The fact is that I see the current situation as a short-term blip and rents will continue to grow in the coming years. With rents accounting for just 29% of tenants’ disposable income, the ability for most tenants to absorb a rent increase does exist.

Council House Waiting List in Ashford Drops by 39.6% in last 12 years

 

Should you buy or rent a house? Buying your own home can be expensive but you could save money in the long term. Renting through a letting agent or private landlord offers less autonomy to live by your own rules, but gives more flexibility if you need to move.

Yet, there is a third way that many people seem to forget, although it plays an important role in the housing of Ashford people. Collectively known as social housing, it is affordable housing, which is let by either Ashford Borough Council or a housing association to those considered to be in specific need, at rents lower than generally found in the private rental market.

Waiting List

In Ashford, there are 4,646 social housing households, representing 17.21% of all the households in Ashford. There are a further 1,609 families in the Ashford Borough Council’s waiting list, which is similar to the figures in the late 1990’s. The numbers peaked in 2004, at 2,665 families, so today’s numbers represent a drop of 39.6%.

Households on ABC Waiting List

Nevertheless, this doesn’t necessarily mean more families are securing a council house or housing association property. Six years ago, Westminster gave local authorities the authority to limit the entitlement for social housing, conspicuously dismissing those that did not have a clear association or link to the locality.

Social Rents Increasing

Interestingly, rents in the social rented segment have also been growing at a far faster rate than those for private tenants. In the Ashford Borough Council area, the average rent in 1998 for a council house/housing association property was £221.56 a month, whilst today its £403.78, a rise of 82% in 19 years.

Rent increase v inflation

When comparing social housing rents against private rents, the private rent statistics don’t go back to the late 1990’s so, to ensure we compare like for like, we can only go back to 2005. Nationally, over the last 12 years, private rents have increased by a net figure of 19.7%, whilst rents for social housing have increased by 59.1%.

Supply and Demand

So, what will this mean for the homeowners, landlords and tenants of Ashford?

Rents in the private rental sector in Ashford will likely increase sharply during the next five years. Even though the council house waiting list has decreased, the number of new council and housing association properties being built is at a 70 year low. The government’s present crusade against buy-to-let landlords, together with increased taxation, and the banning of tenant fees to agents will all act to restrict the supply of private rental property which, using simple supply and demand economics, will cause private rents to rise – making buy to let property to continue to be a good choice of investment (irrespective of the increased fees and taxation laid at the door of landlords). Property values should also remain strong and stable as the number of people moving to a new house (and selling their old property) remains restricted and hence, due to lack of choice and supply, buyers will have to pay decent money for any property they wish to buy.

Interesting times are ahead for the Ashford Property Market!

Taylors Residential Lettings Limited, Company no. 6002742, Regd Office: Suite 1, Invicta Business Centre, Monument Way, Ashford TN24 0HB