Property investors in the UK achieved ROIs of up to 20% in 2017

Ignore the pessimists; property investment is a star performer – again

If you’d taken notice of the press over the last 24 months, you’d think that buy-to-let as an investment was as dead as a dodo. What with the changes in property tax (especially the phasing out of mortgage interest tax relief at the higher rate, and additional stamp duty), the proposed ban on letting agent fees, and more regulations in the private rented sector, many so-called investment ‘experts’ have been quick to trash residential property investment in the UK.

Despite the warnings of impending doom for property investors, the real news regularly confirms that property is still the best investment despite higher property taxes. Property prices are still on their way up – by 5.1% in 2017, according to the ONS – and rents are rising, too.

Here we look at just how ‘bad’ 2017 turned out for property investors, with the latest news confirming that it’s been another great year for most.

Rents are up for most buy-to-let landlords

OK, so here’s the headline that you’ll all be bombarded with:

“Rent rises fail to match inflation on 2017”

Blah, blah, blah!

HomeLet recently announced that the average rent in the UK rose by 1.7% in December 2017 when compared with December 2018. Yes, that’s lower than inflation, which is running at 3.1%. Bad news for investors. But wait! That average headline rate doesn’t tell the whole story.

For a start, let’s look at how rents have increased over the last three years:

  • Up by 1.7% in 2017 v inflation of 3.1%
  • Up by 1.7% in 2016 v inflation of 1.6%
  • Up by 3.7% in 2015 v inflation of 0.2%
  • Up by 7.6% in 2014 v inflation of 0.5%
  • Up by 3.8% in 2013 v inflation of 2.0%

In other words, while the CPI has increased by 7.6% over the last five years, average rental income has increased by almost 20%.

Rental inflation is gathering pace again

Sure, 1.7% per year doesn’t match the stellar rises we’ve seen in recent years, but it is higher than the wage rises that most people have been awarded. You could go out and slog your guts out for 7 days a week and receive a 1% pay rise, or collect rent and receive a ‘pay rise’ of 1.7%. Which would you rather do?

More good news for investors is that the rate of inflation of rents picked up in December. Could it be that rental price inflation will now start to creep up, after a sluggish 2017?

Look at the detail to see the real picture

Of course, averages never tell the whole story. They make for good headlines, but little else. Look closer at the rental price data, and you start to see just how well many property investors are doing. An investor in the Midlands and the North has had a very different experience in 2017:

  • Rents rose by 4.6% in the East Midlands
  • In the North East, Northern Ireland, and the South West, rents rose by more than 3%

Even in London, where rents fell five months out of 12 in 2017, rents are now increasing again. The capital saw average rents rise by 1% in 2017.

Rent is only half the story

Of course, rental income is only half the story when it comes to the return on property investment. You also need to factor in the increase in property values.

According to the ONS, the average house price in the UK increased in value by 5.1% in the year to November 2017. Again, though, this doesn’t tell the whole story. Sluggish price performance in London has dragged this average lower. In the Midlands and the North of England, property prices have grown at up to double the national average rate. Cities such as Manchester, Birmingham, and Leeds were star performers, and are predicted to do well again in 2018.

Investors have received an incredible ROI

The average rental yield in the UK is 5.1%. Add this to the average increase in property value, and the average return on investment (ROI) in 2017 was more than 10%. Again. In some locations, rental yields are in the 8% to 10% range.

The result is that, for many of our investors, especially those who have followed our recommendations and diversified their property portfolios to include property in the North, ROIs have been nearer the 15% to 20% range.

Do you want to know where you should be investing in 2018? Contact one of our team today on +44 207 923 6100 and sign up for the Gladfish Newsletter to stay abreast of all the property investment news that matters. We give it to you straight. No BS. No hype.

Live with passion

Brett Alegre-Wood

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