This evening we have news that Brexit talks between the Conservative government and the Labour Party are “progressing well” but there is still no real end in sight. Property markets have certainly lost their momentum of last year but we have yet to see the forecast collapse in property prices. Yes, London and the south-east have seen house prices fall back but let’s not forget these were markets which pushed ahead while others were more gradual.
Is it dangerous to look to the long term?
At this moment in time it is difficult to see when Brexit will end, when trade negotiations will begin and what state the UK economy will be in one year, five years or even 10 years. However, what we do know is that the current UK population will grow and demand for private rental properties and new-builds will increase. Inflation will not fall off the edge of a cliff, as many are predicting, and the UK building sector will not collapse. So, if this is the case, surely it is sensible to take a long-term view on UK investment property?
Do the figures stack up?
The first thing to do is compare and contrast rental yields to UK base rates and the cost of finance. Tick that box, there is potential to lock in very attractive rental yields which would cover current mortgage payments and leave some leftover. As a consequence, many buy to let properties acquired today would become self-financing relatively quickly. Investors will still need to be selective, do their research and go out on a whim slightly with their forecasts for the future. However, what will happen when UK base rates finally start to move back to more traditional levels?
UK base rates
When we say “back to more traditional levels” it is difficult to remember the last time they were at this kind of level. UK base rates currently stand at 0.75%, against Euro base rates of 0%, and it is unlikely they will increase significantly at least in the short to medium term. Indeed, any more concerns regarding Brexit may even see the Bank of England trim rates on the way down. However, as and when rates do finally start to rise again, how will the current rental yields stand up?
It is safe to say that as and when UK base rates do rise the economy must be performing very well. As a consequence, a side-effect would be increased demand for property and increased demand for rental accommodation. So, even if base rates/mortgage rates were to rise, many rental yields available today would still stand up and many properties would still be main self-financing – with the potential for capital growth.
Property is a long-term investment
How many times do we tell ourselves time and time again that those who make large returns in property often take a long-term view? How many times have we all looked back on depressed periods in time gone by and kicked ourselves for not taking advantage of what were “obvious” buying opportunities? Nobody is suggesting that an investment in buy to let property today would provide an instant return but with relatively low cost finance and strong demand for rental properties, it is difficult to see a collapse in the market.