Ian Boden

Fluctuating house price growth presents a BTL opportunity

When it comes to property investment, there are lots of different factors any investor will want to look at before agreeing to a purchase, with the potential for capital growth chief among them.

Something that is very clear from our latest buy-to-let index is that while the general rate of growth has slowed over the past year, certain areas are still enjoying strong house price growth.

It is impossible to deny that postcodes within London and the South East are experiencing a slowdown in their rate of price growth, with the likes of Dartford seeing a 66% drop in house price growth over the last 12 months. St Albans, Romford and Reading have all seen house price growth slow by at least 50% over the same timescale, too.

On the face of it, this may appear to be something of a concern for landlords. After all, why put your money into a town where house price growth is falling off a cliff, when you could instead buy in somewhere like Truro, where the rate of house price growth has jumped 73% in the last year?

In reality, this is a very short-term view. While house price growth has slowed, it’s important to remember that prices are nonetheless still increasing. Those assets are becoming more valuable, not less. 

Other areas such as the South West and the Midlands are experiencing very clear gains in our latest quarterly BTL index, with cities such as Leicester and Birmingham continuing to rapidly climb the ranks.

Sure, we aren’t seeing the sort of enormous year-on-year gains that happened before the credit crunch, but that’s a good thing. Property investment is generally a long-term pursuit, so slow-and-steady growth over a longer period is welcome. 

It’s also true that there remains a fair bit of uncertainty around the housing market at the moment, with what a post-Brexit Britain will look like still largely a mystery. But the fundamentals of the housing market haven’t changed, and those fundamentals point towards continuing profits for professional landlords.

There is a desperate need for more housing from Land’s End to John O’Groats, and we remain some way off boosting our housebuilding rate to a level that will actually meet that demand. So, as long as there is a shortage, house prices should continue to grow, no matter what our relationship with Brussels looks like.

Professional landlords – those who make their living from bricks and mortar – are more likely to take the long-term view and see slowing house price growth as an opportunity rather than a reason to back away entirely from the market. 

After all, slower house price growth should make it more affordable for these landlords to expand those portfolios. They can take their time to really get a feel for a property and whether it will complement their existing portfolio, rather than feeling rushed into snapping it up due to the threat of house price growth pushing it out of their budget. 

Professional landlords are less likely to be tempted into an investment simply on the potential for capital growth, instead taking into account everything from rental growth to transaction volumes. 

It’s only by taking a holistic approach that landlords can truly evaluate the long-term prospects for an investment property. Focusing too much on capital growth is a sure-fire way to overlook what could be a winning addition to a portfolio.

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