Finance News

Recovery in the Property Market Gaining Buyers’ Confidence

Em Morley - September 12, 2013

The recovery in the property market over the last few months has improved buyers’ confidence. Alongside the Government’s Help to Buy and Funding for Lending schemes, the amount of properties being sold has increased, as has the average price they achieve.

A rise in house prices can be good for the buy-to-let sector, however, they can cause a struggle for those looking to break into the industry, or expand their portfolio.

Recovery in the Property Market Gaining Buyers’ Confidence

Recovery in the Property Market Gaining Buyers’ Confidence

If you already own a buy-to-let property, higher prices and a recovering housing market will have a positive impact on your portfolio. Subject to the sector that your home is in, the market strength could increase your capital growth, or in the worst case, stop any further drops in value.

However, if you are looking to invest in buy-to-let now, or expand your portfolio further, available yields could be extremely low, and may not produce enough money to cover daily costs.

Yields are generally around 3-4% in central London, and 5-6% in the majority of the UK. Some areas, such as Nottingham, and Sunderland can produce 10% yields.1

Preferably, a buy-to-let investment would return about 7%, allowing you to ensure there are available funds when rates go up.

Additionally, it is important to consider whether rents can rise with inflation. Most rental reports are currently stating that rents are staying the same or even falling.1 A primary reason for this is that rents are likely to rise and fall in line with disposable income, and this has declined recently.

If you are a cash buyer, you are less likely to be concerned over yield levels. Nevertheless, cash buyers need to consider that house price growth must keep up with inflation to avoid a drop in income returns, and an asset’s value decreasing.

Furthermore, investing when prices are growing will cause added competition with buyers. If prices fall, you will find good bargains, but finding good deals when prices are rising is increasingly difficult.

1 http://www.landlordexpert.co.uk/2013/09/11/is-the-property-market-recovery-good-or-bad-news-for-buy-to-let-investors/