The Newbury Property Market is a very interesting animal and has been particularly fascinating over the last 12 years when we consider what has happened to Newbury rents and house prices.
There’s currently much talk of what will happen to the lettings market following Brexit and the imminent landlords taxation. I believe we must look at what happened in the 2008/9 credit crunch (and what has happened since) to methodically judge and rationalise the possible ramifications for long-term investors in the Newbury property market. You see, an important, yet overlooked measure is the performance of rental income vs. house prices. In Newbury (as for the rest of the UK), notwithstanding a slight drop in 2008 and 2009, property rents have been gradually increasing.
Today, they are 22.6% higher than they were at the beginning of 2005 and over the last five years, the average growth has been a steady 2.4% per annum. From a landlord’s point of view, increase in average rental income is not to be sneered at. However, the observant readers will be noting that we are ignoring an important factor – our friend inflation.
Turn the clock back to 2005, and we had a property being rented for £900 a month. That property is still being rented to the same tenant at £1100 a month today. While the landlord is getting more income, this £1100 is no longer worth as much. Let me explain, in 2005, £900 may have bought a two-week 4* holiday in Italy. Yet, holidays have increased in line with inflation (which has been 38.5% since 2005), so today our holiday would cost £1,246. You could suggest that the landlord is £146 down on his 2005 position even though he has increased the rent in line with the market rate..
This means when we compare rents with inflation in Newbury since 2005, (22.6% to 38.5%) Newbury landlords are worse off when they receive their monthly rental income than they were in 2005 by 15.9%.
However, rental income is not the only way to generate money from property as property values can increase. Although in the short term, cash flows are diminishing, many Newbury landlords may be content to accept that for a good increase in capital value.
Property values in Newbury have risen by 55.7% since 2005
This equates to a reasonably salubrious 4.64% per annum increase over the last 12 years. Even more interesting that this includes the 2008/9 property crash, this will make those Newbury landlords and investors feel a little better about the information regarding rents after inflation.
Moving forward, the prospects of making easy money on buy to let in Newbury have diminished, when compared to 2005. Last decade, making money from buy to let was as easy as falling off a log – but not anymore.
It would be true to say, my rental income vs property prices study does lead to noteworthy thoughts. I am often asked to look at my landlord’s rental portfolios, to ascertain the spread of their investment across their multiple properties. It’s all about judging whether what you have will meet your needs of the investment in the future. It’s the balance of capital growth and yield whilst diversifying this risk.
If you are investing in the Newbury property market, do your homework and do it well. While some yields may look attractive, there are properties in many areas that do not have the solid rudiments in place to sustain them. If you are looking for capital growth, you might be surprised where the hidden gems really are. Take advice, even ask your agent for a portfolio analysis like I offer my landlords. Your agent should be able to give an analysis of past and anticipated investment opportunity (especially the effect of inflation) on your portfolio. However, if they can’t help – well, you know where I am, the kettle is on!
If you want to know what would (and what would not) make a decent buy to let property in Newbury, then one place for such information would be the Newbury Property Blog. Please visit www.newburypropertynews.co.uk view our pages on Facebook or pop into our office in Cheap Street in Newbury.
