The buy to let market is much tougher than it once was, due to tighter tax regulations and ongoing Brexit uncertainty.
But that doesn’t mean that there is not still money to be made.
The demand for rental property remains strong and the idea of investing in property remains appealing.
People still trust bricks and mortar and they feel that they can add value to a home in a way they can't to an investment fund.
Rental Yield vs Capital Growth
If you are considering investing in property, you are probably looking for one of two things:
- • a regular income stream (rental yield), or
- • the purchased property value to increase over time (capital growth)
Over time there may even be a combination of both.
Whilst it is true to say that the growth in house price’s has slowed, making significant capital growth less likely, savvy investors can still enjoy good rental yields.
Rental yield, put simply, is the annual return you can expect to make on a property you own through the rental income.
To calculate the potential rental yield on a property, take the annual rent and divide it by the property value and then multiply this by 100.
A property for sale at £200,000 that has an annual rent of £16,000 would have a rental yield of 8%.
Your income from rent needs to exceed your expenditure.
If you are merely breaking even you won’t have funds to cover contingencies such as essential property maintenance.
What area should I invest in?
Once you have decided that investing in property is right for you, you then have to decide where to invest.
Property prices and average rents are different for each town, city and region meaning that yields will vary across the UK.
There are many factors that can affect property prices in a given area on top of general market supply and demand for housing.
If there are plans for regeneration, new infrastructure, transport links or investment in an area this can have a positive effect on future prices.
The area you choose should be a place where people want to live and this can be for a variety of reasons:
- • close to the train station, if you are in the commuter belt
- • near good schools for young families
- • an area of the town that has a special appeal
- • an area popular with students
The benefits of investing in a property close to where you live is that you are familiar with the area.
So you are therefore more likely to be able to spot the kind of property and location that will do well.
Some investors also prefer to be close by to their properties so it is easier to keep tabs on them.
Investing in your local area however might not always be the best financial decision.
You may find a property with better rental yield or capital growth in a different area so this option is definitely worth considering.
The Top Ten Places to Invest in 2019
Location is key to finding the best property for investment.
Today, it seems clear that many of the UK’s best buy to let areas are located north of the Midlands.
Northern hotspots like Liverpool and Manchester are now stealing the property top spot from cities in the south.
The relentless regeneration in the north with vast amounts of money being ploughed into sectors such as skills, innovation, transport and culture has led to tenants flooding to these new and vibrant cities.
The Midlands is also an area for landlords to keep an eye on.
The city benefits from a huge professional service sector, creating a substantial pool of tenants.
There has been significant regeneration in the city and the forthcoming HS2 will also have a positive effect.
According to new research carried out by financial comparison site Totally Money, the top 10 highest-yielding postcodes are:
|Top 10 Highest Yielding UK Postcodes|
|No.||Postcode||Area||No. of Properties for Rent||Average Monthly Rental Value||No. of Properties for Sale||Average Asking Price||Yield|
Buy-to-Let Mortgages – What Do I Need to Know?
If you’re looking to borrow money to fund an investment property you typically need a deposit of at least 25%, and the projected rent will need to cover 125% of your mortgage repayments.
Buy-to-let mortgages are often arranged on an interest-only basis.
This means that you will have lower monthly repayments as you’re only paying off interest.
But you will need to have a plan to pay off the actual loan at the end of your term (your plan can simply be the eventual sale of the property).
Is property a good investment in 2019?
Before investing in property, you’ll need to do lots of research.
Deciding on the right investment can be a tricky business.
It is important to have a rental yield of around 8%.
But you also need to have a good location, good capital growth and decent tenant demand.
So make sure you consider all of these elements before you take action.
The key to a good investment is to strike the right balance between all of these different factors.
Property is still a good investment if you choose wisely, negotiate your entry price well and take a long term view of the investment.
Do not expect miracles in the short term and look after your tenants with continual ‘investment’ in the property.
Choose your investment location well and you will maximise your prospects for strong capital growth.
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Disclaimer: Mortgages for Yacht Crew does not provide advice in relation to savings and investments. This article is intended for discussion only and does not propose financial advice in any way, and therefore should not be construed as such. Your property may be repossessed if you do not keep up with mortgage repayments.