Writing for the Daily Telegraph property surveyor, landlord and property show host Phil Spencer says landlords should “hold firm and remember their reasons for investing.”
Mr Spencer, a trained surveyor with over 20 years’ experience behind him, he’s known best for presenting some of the UK’s favourite property TV shows. These include Location, Location, Location and Love It or List it, with Kirstie Allsopp. He is also the author of several books on property and he’s a regular property writer for the Daily Telegraph.
Phil admits, and he knows from personal experience, Britain’s small-scale buy-to let landlords have had a hard time of it recently. What with mortgage rates doubling from an average of just over 3 per cent a couple of years ago, to over 6 per cent today, any landlord with a big mortgage or mortgages will be feeling the pinch.
What’s more, property values have been falling, by up to 10 per cent in some locations and the legislative changes the Government has brought in over recent years, or is bringing in soon, make it harder for landlords to manage their properties, and make much money out of them.
Public opinion has always been stubbornly against landlords. But more recently, with media stories abounding about tenants being evicted, damp and mould in rental properties, and tenants being priced out of rentals, that’s when they can find a vacancy, it’s all reached a new level.
The first thing he advises landlords to think about is that the landlording business is a long term enterprise. It’s not a get rich scheme as many people think, and the property course gurus would have us believe. Your time horizon should be in multiples of years: ten or twenty years would not be out of the question.
According to investment advisors, Schroders, on average a UK property worth £100,000 25 years ago would be worth, on average around £454,000 today. This would vary across regions and in the major cities like London where it would be worth around £580,000 and in Scotland, £407,000.
These growth figures are exclusive of ownership costs such as maintenance, repairs, insurance, taxes, mortgage payments, but importantly, income generated over that period of time would be substantial.
Sam Dyer, 33, quoted in the Daily Telegraph says he has the time to wait, and “If it takes 10 years, it takes 10 years, but the rental market is so strong it doesn’t really matter if you can’t sell them, as long as you can keep things running.”
Prices might be stagnant or falling, he says, but the rental market is “absolutely on fire” and “high-quality properties can deliver yields of 10pc based on their value.”
Sam Dyer says he’s changed his view over time: “I was quite focused on yield, thinking about your rental income and that side of things, but now I can see the real money is made on capital growth. That’s where the real wealth is generated.”
However he cautions: If you “Want to be a landlord with fewer than 10 properties? Don’t bother” Increasingly, he thinks, “onerous red tape means that it only makes sense to let property at scale.”
While the economy goes through it’s cycles, it’s ups and downs in the short term, long term these even out to give a steadily rising income and growth in property values, that’s been the case for over one hundred years and that’s not likely to change in the future.
So Phil Spencer says, “I want to make the case for being a landlord to you and sticking with it even though it feels the tide is against us.”
For those landlords lucky enough to have bought properties when money was cheap, and maybe used mortgages, as Sam Dyer did, leveraging loans to build a portfolio, they made a shrewd investment. They’ve ended up with a substantial amount of valuable property (£10mn worth in Sam’s case) which will stand them in good stead as they get older, while at the same time producing a steady income.
When things change you must adapt to the changes. While mortgage rates and other issues are making it more difficult to make a profit in the short term, the silver lining is that rental demand is higher than ever and average rents are increasing.
Rent increases averaged over 10 per cent over the last 12 months and in some locations this figure reached 13 per cent, so there’s plenty of opportunity to increase your rents whether that be with and existing tenant, or certainly when you are doing a new letting.
According to the agent Hamptons International it’s projected figure has rents rising at around 25pc over the next four years. Housing is in short supply and housing supply is inelastic, it cannot be suddenly remedied, and the way our planning laws work it’s likely to be many years before the UK has enough houses to have any effect on the shortage.
Phil Spencer adds a warning though: he doesn’t think landlords should be profiteering in a situation where tenants are queueing up for every rental vacancy in some locations. “I think if you want more money you should ask for it at the advertised price – no one has engineered this.” he says.
And in terms of house prices, “I think it is always important to remember that they don’t matter until they do.” The value of your property doesn’t matter until you want to sell. At that time, with a mortgage, you benefit from the gearing when you have only put down 10 to 30 per cent.
As with stock market investing, you shouldn’t sell when there’s a short term drop in value, especially when you are confident that over the long term the economic conditions will improve. Selling a dip can be a sure way to destroy your capital. History shows prices always do return even at the worst periods of our history.
Currently, says Phil Spencer: “I am making no money on a couple of flats I own and rent close to Victoria in central London. A combination of increased service charges and mortgage rates mean I am only just breaking even, despite putting up rents.
“So why aren’t I selling up (current housing market aside)? Because I believe the reasons I bought in the area still hold true. Yes, it is going to take longer for the area to reach the potential I think it has, but it will get there and when it does, then I will make a decision about selling.
“I tend not to purchase buy-to-lets with a firm figure in my head of what I want to get from it. It is too fluid. But this isn’t necessarily the same for everyone. I go to work to make my money, my buy-to-let portfolio is a long term investment that I hope makes some money in years to come,” he says.
Spencer says he avoids a lot of the hassle of being a landlord by using a good agent to manage his properties. He thinks, with the amount of new regulations that have built up over recent years, that he would struggle to manage them himself alongside his main career.
However, he cautions that you must keep a watching brief: keeping an eye on the types of tenants your agents are selecting. You can quite legitimately stipulate that you interview them yourself as part of the selection process.
Part of your strategy of building a workable portfolio size is to consider doing your investments through a limited company. There are tax advantages for doing this but you should speak to a tax specialist before taking that step.
However, if you do this you will be in good company: according to Hamptons the number of buy to let landlords forming companies has doubled since 2016.
So, despite the struggles, the brick bats, higher mortgage rates and lower margins, landlords should hang on in there according to Phil Spencer.
Tags:
Comments