I had an interesting chat with a landlord who uses another
letting agent in the town, after he popped into our offices for a coffee whilst
his wife was doing some last minute Christmas shopping. We got taking about the
Canterbury market and thought other landlords might be interested.
You see, property values didn’t stop dropping in Canterbury
until June 2012, so after a strong run over the last 30 months, the ever upward
drive of house price rises has started to turn with increases now at an almost
standstill for the first time since the start of 2013. Now it could be said
this easing of the housing market in Canterbury can be attributed partly to the
time of year (last year property values in Canterbury dropped by 0.1% in
November but recovered by 1% in February 2014), it is obvious that estate agents
in Canterbury are wary about the direction of the market as a result of the not
as strong demand and fewer house sales.
With the uncertainty of a possible interest rate rise, new
mortgage rules, a general election on the horizon and recent warnings of a
house price bubble. Although the main indicators suggest that buyers will start
to gain the upper hand, especially with the new stamp duty rules announced
recently by George Osborne. However, there are many homeowners who don’t need
to sell and won’t bother unless it’s economically beneficial to do so, but most
homeowners are homebuyers, so what they lose with one they gain with another.
This is all good news for landlords looking to buy rental
property with the changes in stamp duty and later in 2015, the new rules
regarding pensions, where you will be able to take money out of your pension
pot to invest in property. However, at the same time, I would say don’t just
buy any old property in Canterbury. First time landlords need to be cautious.
The doubling of house prices every seven to ten years which has taken place
since WW2 doesn’t seem to have been seen since the mid 2000’s. The property market
is shifting with more properties being built and restrictions put on mortgage
lending, the likelihood of the property market increasing at the same levels as
the past are questionable. But investing in property is also about receiving
the rent.
On the one hand going for high yielding Canterbury property
to rent out seems an obvious choice, but high yielding property often doesn’t
go up in value that well and in some circumstances doesn’t keep up with
inflation, meaning in real terms you have a depreciating asset (I spoke about
this a few months ago in ‘The Canterbury Property Blog’ when comparing the Thanington
Estate to South Canterbury, where property values in Thanington Estate had only
risen by 41.3% in last 13 years yet the property values in the South Canterbury
housing market had risen by 84.3%!).
So surely you should pick a property that has great capital
growth then, because of the obvious potential to generate long term capital
profit, especially with inflation eating away at our savings. However, rental yields
on high capital growth properties (in areas such as Chestfield in Whitstable,
the Rough Common area and the Old and New Dover Roads) tend to be low meaning
if you are taking a high percentage mortgage, the rent doesn’t pay the mortgage
payments.
These are the sort decisions as a Canterbury landlord
investor you need to take.
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