Buy-to-let has come out on top

A recent Telegraph article highlighted residential property as the number one mainstream investment over the last 18 years, with annual returns of more than 16%.

This meant £10,000 invested in 1996 in a property with a 75% loan-to-value mortgage was worth £130,480 by the end of 2013.

This compared to only £47,910 if the property was bought for cash, £30,820 if it was put in the stock market, £29,240 in government bonds and £19,490 if the money was left in a savings account.

The startling difference in returns made in property with and without utilising mortgage finance highlights the sensational capital growth the market has seen.

Many landlords insist the yield or rental return is the key component of property investment. However, the Telegraph article highlights the important fact that it is actually the capital growth over the long-term that will provide the majority of your returns.

This buy-to-let see-saw of buying for yield versus capital growth is an interesting topic. It is reflective of the overall ‘North-South’ divide in the UK, whereby investors in Northern cities can buy properties far cheaper and receive a better initial return, albeit at the assumed cost of not having as great an increase in property prices in the future due to the South’s enduring popularity.

I had a landlord comment this week that he preferred to invest in North Bersted than Chichester because “it offered better returns.” This is indeed true if you look simply at the yield (an average of 4.6% in North Bersted versus 4.5% in Chichester). However, when looking at the capital growth of the two areas over the past five years it is evident that Chichester would have offered a far better overall return, with capital growth of 22.3% over the period, versus just 9.9% for North Bersted.

This is why it’s important to understand what you want from your property investment: higher income today or stronger capital appreciation in the long-term.

Locally, Portsmouth and Havant offer the strongest average yields (5.6% and 5.8% respectively), whereas Chichester has proven to have the strongest capital growth of all the PO postcodes.

Ultimately, your returns will come down to how much of a hard bargain you can drive on the purchase price, as this will determine both your initial rental yield and future capital growth (they say you make your money when you buy, not when you sell).

I suggest landlords should seek the best advice and information you can. Speak to me, speak to others and make sure you do your homework and the sums when buying - using your head rather than your heart.

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If you are looking for an agent that is well-established, professional and communicative in Chichester, then contact us to find out how we can get the best out of your investment property.

E-mail me on clive@crjlettings.co.uk or call 01243 624 599.

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