Landlords have made substantial profits in the past decade, as today’s Hamptons International research highlights.
The study reveals that investors who sold their property in 2019 typically made capital gains of £78,100 after holding onto the home for just over nine years.
This follows talk that landlords should exit the market following a series of policies from the government designed to disincentivise investors, including the introduction of the 3% stamp duty surcharge in 2016 and the reduction of mortgage tax relief, completed as of April 2020.
Some 150,000 apparently did just that in England and Wales and sold up last year.
Perhaps it’s true that being a landlord isn’t as lucrative as it was.
The Hamptons research indicates that average gross capital gains have fallen slightly over the years, from £82,900 in 2017 and £80,500 in 2018 – the trend may be down but making over £78,000 is still surely not to be sniffed at. The question is whether similar gains will be achieved in future.
The study demonstrates the disparity between properties that have made sound investments due to the capital gains, and those that offer strong short-term yields by taking the cost of the property and local rents into account.
Landlords who sold up in London typically made gross capital gains of an astonishing £253,580, over 20 times that of a seller in the North East (£11,710), yet when it comes to yields London tends to lag far behind other areas.
Research from Mojo Mortgages at the start of June said the top 10 worst places to invest in based on yields were in London. Instead it was postcodes in the Northern cities of Liverpool, Bradford and Sunderland that offered the best yields.
While the latter cities may not promise substantial house price gains, they are clearly valuable to investors based on the immediate yields.
Whether London will continue to be the home of capital gains growth compared to yields is up for debate, as particular conditions led to such strong house price gains over the past decade. London, as the UK’s economic hub, was best placed to recover from the global financial crisis and therefore saw extremely strong house price growth after some years in the doldrums.
However now, with working from home becoming commonplace due to Covid-19, you wonder whether people are more inclined to have more space living in cheaper areas, thus lowering the competition to buy in the capital, which fuels this house price growth.
That’s a debate that will rumble on.
As a landlord nowadays there are more upfront costs to take into account when investing in property. However history tells us that the trajectory of house price growth tends to be up in the long-term, while if you are lucky enough to invest in a city that flourishes you may be able to profit from substantial capital gains, even if the yields are modest.
In sum, it’s worth buying in some areas for yields and others for capital growth. If you care about the latter you should do your research on whether you’re buying in a town or city that’s attracting investment, or is likely to over the next decade. It could pay off in the long run.
Ryan Bembridge, Editor, PropertyWire
