Investment news gives clues for property profits

Investment news gives clues for property profits

Property investment news provides lessons for investors and landlords

Last week’s investment news is further evidence that the UK property market continues to evolve in favour of buy-to-let investors:

  • House price affordability is at record lows
  • Young people are struggling to get on the property ladder
  • The self-employed are less likely to buy their own home
  • House price disparity continues to widen
  • And investors are warned about DIY letting

Affordability is at record lows

The ONS reports that house price affordability is at a record low in England and Wales. Between 1997 and 2016:

  • The median price paid for residential property increased by 259%
  • Average wages increased by just 68%

People are now paying 7.6 times their annual earnings on a property.

The most affordable local authority in 2016 was Copeland, where house prices are 2.8 times earnings. The least affordable, at an enormous 38.5 times earnings, was Kensington and Chelsea.

As many lenders limit their mortgages to 4.5 times earnings, more people are renting, or turning to other solutions to get on the property ladder, such as teaming up with friends, buying as couples, or relying on family for support.

A quarter of young people don’t think they’ll be able to buy on their own

New research from Post Office Money Mortgages shows that 27% of individuals between 18 and 34 feel they will never be able to afford to buy a home of their own.

Around half of young couples rent their property. The average period of renting before buying a home together is now four years.

The average cost of a starter home increased last year to £183,385 – 7% higher than a year earlier. The average wage of a single young person is £27,274. Joining forces to buy a home is the only option for many couples. However, for 1 in 5 of these, unequal contributions cause tension in the relationship.

It’s official: self-employed are less likely to buy their home

Recent research from Aldermore concludes that two-thirds of self-employed believe they will never be able to afford to buy their own home. For a third, the biggest hurdle is raising the deposit. Only 14% said that raising a mortgage was the problem.

It seems likely that the self-employed sector will be a growing market for buy-to-let investors. The self-employed sector is booming in the UK. In 1975, less than 9% of the workforce was self-employed. In 2008, this ratio had increased to 12%. By 2015, this had increased to 16%. It has been forecast that the self-employed sector will be bigger than the public sector within a few years. There are currently around 4.6 million self-employed people in the UK.

House price disparity continues to widen

If you buy a property in a cheap area, be prepared to lose money. That’s the conclusion to be drawn from the latest ONS research into house price disparity.

Average house prices in the cheapest neighbourhoods are falling. Those in more expensive locations are rising.

The median price for residential properties ranged from £24,500 in County Durham to £2.9 million in Westminster.

Five years ago, Burnley had the lowest median house price, at £42,000. The median price paid there now is £35,000.

Warning: don’t let through Gumtree or without a letting agent

The latest episode of ‘Nightmare Tenants, Slum Landlords’ (aired on 15th March), provides a warning for landlords: if you go it alone through a site like Gumtree, be prepared for problems.

It highlights the case of a landlord who marketed her buy-to-let property through Gumtree, to save on what she considered expensive costs of investment property managers. A young professional moved into her property. It wasn’t long before he stopped paying rent.

The landlord now says she would do things differently. She believes that serial nightmare tenants target DIY landlords, knowing that the checks they are subjected to will be fewer and less interrogative.

Lessons from last week’s investment news:

What lessons can we draw from this news? Working through:

  • The private rented sector will continue to grow as people adapt to house price affordability issues
  • Investors are likely to do better by avoiding ‘cheap’ areas
  • Buy-to-let landlords should always use an investment property manager to let their property
  • And be prepared to let to the increasing number of young people and self-employed wanting to rent quality properties from reliable landlords

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Live with passion

Brett Alegre-Wood

About the Author

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Gladfish. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids.

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