LOW INTEREST RATES INCREASES ATTRACTIVENESS OF BUY TO LET

Today’s reduction in interest rates is bad news for savers with the most competitive saving accounts already pulled (see https://www.theguardian.com/money/2016/aug/01/savings-accounts-disappear-bank-of-england-prepares-cut-rates). It’s almost at the point where interest isn’t being paid on credit balances by financial institutions, so although the government has tried to make property investment less attractive through taxes and the like, many people are likely to do the maths and decide that buy-to-let will clearly offer a better return.
As an example I saw an Essex based investor earlier in the week who owns a couple of properties in Northampton already. He has some cash from a pension lump sum – about £150k – and was looking at how to generate a return from it. Thought process was as follows:

·        He could leave it in the bank. The market leading rate for 1 year is about 1.5%, so that would be his return.

·        He could buy an investment property for cash spending maybe £130k. Add on some stamp duty, purchase costs, and improvements to the property and he’d be at about £140k, with £10k left in his pocket for a rainy day. I’d let it for him – we assumed a price of £650 which is fairly average in that price range, so that’s £7800 income the first 12 months. Being a cautious chap, he assumed he’d lose £2000 of that to agency fees, insurance, repairs to the property etc leaving him with a return of £5800 on an investment of £140,000. That’s a return of 4.1%. There was also the potential for capital improvement on the property which could make this figure rise significantly.

His summary was simple and offers some perspective. Some investors will look at what’s available and conclude Buy To Let returns aren’t as attractive as a few years ago – they may be correct, but that’s a change in the economy in general. However they are still WAY better than leaving the money in the bank where £150,000 will get you £2250 in interest compared to £5950 in property – and that’s AFTER costs.

SOLD : £100k for a 3 bed freehold - a bit of summertime VALUE

In a market where estate agents are STILL overvaluing to win instructions, there’s some very good value here if you’re investing and looking for a freehold property.

http://www.rightmove.co.uk/property-for-sale/property-60717839.html

This is a 3 bed house for under £100k. Not in the best area of town, but in an area that’s very lettable. It’s going to need some improvement at that price, but this is at least a £125k house once done and it’s habitable already so there’s no way £25k needs to be spent. Unless there’s a structural issue – which there shouldn’t be in a property of that age – this is very keenly priced and will sell immediately.

Rental wise, £650 is a safe figure for this once it’s been brought up to date. So let’s say the final spend is around the £110k mark, that’s a return of 7% - a bargain in the current market.