There is no doubt about it, we are living in uncertain property times!
The era of “Brental” – where people decide to await the outcome of the EU “Leave” vote before buying, selling, or moving – is upon us, not to mention uncertainty about the economy, and landlord tax changes.
Despite this, landlord sentiment remains surprisingly positive.
Investor confidence in the lending environment remains unchanged, according to the latest Shawbrook Bank Commercial “Client Barometer”, which was published today.
The survey, which explores the views of property professionals in the wake of the UK’s decision to leave the EU, reveals that 57% of property investors are feeling very confident or fairly confident about the lending environment over the next six months, compared to 59% in January 2016.
This confidence is reflected in the proportion of investors looking to buy an additional buy-to-let (BTL) over the next year, 58% compared with 56% in January 2016, and suggests Brexit has not had an immediate impact on people’s future investment plans and their attitudes towards BTL investing.
While Brexit may not have de-railed investor plans, it is still cited as the biggest challenge this group will face over the next year (according to 32% of investors).
See our blog – Brexit for landlords
In view of this uncertainty, we thought it might be helpful to list 5 things that can be guaranteed about property investment, to help landlords see the opportunities:
1. You are going to get older
Sorry folks, there is no denying this. Each day you are one day closer to retirement.
So you need to ensure that you have provision for a pension and property investment is one of the most popular ways to provide this.
With the outlook for savers looking grim, almost half of over 45 year-old homeowners – equivalent to just over 6m UK households – see property as a crucial part of their retirement income planning, research shows.
According to the latest Aviva Real Retirement Report, 69% of homeowners own a property worth more than their pensions, savings and investments.
2. Cash flow trumps capital growth in the short term
This is especially true during challenging economic times. Most people agree that property is a long-term investment. In order to benefit from capital growth, you must stay in the game for a long time-frame – consider that to be 15 to 20 years minimum.
Therefore, in order to survive, you should focus on net cash flow, month on month. That is money in your pocket you can spend, whereas capital growth is purely speculative and cannot be relied upon.
When assessing cashflow, it’s prudent to factor in at least one month per annum of voids, plus allow contingency for repairs and other unexpected costs that inevitably crop up.
Use our Rental Income Calculator to work out the true net rent of a property investment.
As billionaire property investor Warren Buffet once said:
“Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard”.
3. Having a roof over your head will never go out of fashion
Everyone on this small island of ours needs a roof over their head – shelter being a basic human need. That is not going to change.
The supply/demand imbalance is still massively skewed due to successive Government’s failing to have a cohesive housing policy that tackles the shortage of affordable homes being built.
With social housing massively in decline, there is even more need for private landlords to supply accommodation.
Just this past week, council leaders in England have urged the government to make urgent reforms to the right-to-buy scheme, after figures showed that the number of sold-off homes replaced by local authorities fell significantly.
Analysis by the Local Government Association (LGA) showed that 12,246 council homes were sold to tenants under right to buy in England in 2015-16, but just 2,055 replacements were started by councils – a drop of 27% on the previous year.
Earlier this month, the Resolution Foundation published research showing unaffordable home ownership is not just a London problem but affects people across the whole of the United Kingdom. The number of new homes started was less than 150,000 last year, the average house price has risen 60% in 13 years, while pay for many people has risen at only a fraction of that rate. By some estimates, in less than a decade there will be a shortfall of at least 4m affordable homes.
The private rented sector has an important role to play in housing the nation and giving tenants choice and flexibility, and that will not change in the forseeable future.
4. Inflation is on the landlord’s side
As we have already stated, low interest rates are bad for savers. Inflation is also bad for them as it means the value of money diminishes over time. This again leads back to pension provision, and how people have to ensure that they have enough money to fund their retirement.
Suppose that you needed £60,000 for your first year of retirement. How much money would you need in 20 years to maintain the same purchasing power as today? Assume the annual inflation rate averages 3%.
The first result (Reduced Amount) is £33,220.55, which represents the value of £60,000 in 20 years. The second result (Required Amount) is £108,366.67, which is amount of money that you need in 20 years to match the purchasing power of £60,000.
This is another reason why many people prefer property to other asset classes or savings accounts in the current economic climate.
However, for landlords using finance and mortgages, inflation has the effect of eroding debt over time. This is combined with potential capital growth over time, and month on month cash flow from the rent (the importance of which was mentioned in point 2).
5. Our Guaranteed Rent service
Forgive us for sneaking this one in, but it is guaranteed, and we have been giving our landlords peace of mind for 20 years now.
Our Guaranteed Rent service does what it says on the tin – your rent is guaranteed whether the tenant pays or not, or the property is empty.
Just this month it was announced that the number of households living in the private rented sector in England evicted by bailiffs has gone up 88% in the past five years.
According to another report released by Shelter this month, an estimated 3 million working families in England are one pay cheque away from not being able to pay their rent or mortgage.
Shelter and market research firm YouGov reached this conclusion after interviewing 8,381 adults in the UK and found 37% said they would be able to cover their housing costs for more than a month if they or their partner lost their job. They calculated the 3m figure using information from the 2011 Census published by the Office for National Statistics, which showed there were 8.4m working families in England.
The Shelter/ YouGov report also found 23% of working families said they would be unable to pay their housing costs at all if they or their partner lost their job.
These statistics make a compelling case for our Guaranteed Rent service for landlords who simply want to “let and forget”.
This short video explains our market-leading service:
So, if you are looking for certainty in an uncertain world, our Guaranteed Rent service is sure to deliver landlord peace of mind.
All our offices around the U.K. are committed to advising landlords throughout their property journey, bringing expert knowledge, contacts, and property management.
To find your local Northwood office, please click >>> here.
Northwood is one of the largest and most recognised estate agents in the U.K. and the leading supplier of Guaranteed Rent to give landlords complete peace of mind.
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