There have always been pros and cons.
On the downside, property cannot always be sold quickly and easily; life as a professional landlord can be a nightmare with a bad tenant, the work and costs involved in maintenance/repairs and having to pay Income Tax on rental profits and potential Capital Gains Tax on increased values may reduce its investment attractions.
On the plus side, rental yields have often been much higher than interest rates payable by Banks. Some landlords enjoy minimal costs and hassle with their tenants. Sale prices of investment properties have probably (like most houses) increased over the last 12 months or so.
The “freeing up” of pensions may need to be factored in.
There are signs that the so-called “silver generation” are preparing to unlock their Pension Funds and put the money into investment properties.
We read that an Oxfordshire Letting Agency (Finders Keepers) runs bus tours for potential landlords viewing investment properties around Oxfordshire. Tickets for the tour on 9 April were sold out and pensioners took almost all the places.
A Mr Shepherd, aged 62, who was apparently on the tour, explicitly stated that he was planning to take his pension and use it to add to his existing portfolio of five properties.
Mr & Mrs Wrightman and Mr Marment were quoted as being on the same tour and exploring the same option by using their Pension Fund. Will this factor contribute to a “housing bubble”?
Property professionals report an extraordinary interest in the housing market.
The property website, Rightmove, announced that it received 55% more “hits” this year than last year. Estate Agents are reporting a dearth of suitable, available properties. The average house price in England rose 7.2% in the past year with future increases highly likely if the number or buy-to-lets increases.
Worryingly, rental yields are falling and interest rates are rising. The Estate Agent, Savills, has warned that total returns (the addition of rental income and property price increases) will fall from 11.6% this year to 7.1% in 2018.
The Royal Institute of Chartered Surveyors believe that rental yields will fall from 5.25% last year to 4.82% in 2018.
Of course, these are gross yields and do not take into account any amounts that have to be spent on maintenance, repairs, non-paying tenants, Income Tax etc.
House prices may well continue to rise in the short term. For example, a report by the EY Item Club forecasts price increases of 7.4% in 2014 and 7.2% in 2018.But what happens when the Help-to-Buy Scheme comes to an end (for non-new build properties)?
Many experts believe that interest rates will rise next year and fixed mortgage rates are already rising.
In March 2013 we speculated that a variety of factors could come together to deliver benign conditions in the housing market. We still believe that there are some arguments in favour of becoming a private landlord but that future factors may combine to make this investment option rather less attractive.
