Property price bubble talk is ‘premature’
Latest analysis from buy-to-let specialist, Assetz, suggests that we are far from the prospect of a ‘property bubble’.
In fact, they claim that current healthy buy-to-let yields, especially outside of London and the South East, are part of the proof that we are not at the end of another a boom/bust cycle.
Strong gross average yields of 7-8% currently being achieved across many economically sound regions of the UK indicate that investments are cash positive and have significant opportunity for price growth – buffered against interest rate rises and dispelling talk of a bubble, says Assetz. Rental values are also set to continue rising, increasing incomes further as the number of renters surge in line with population growth, and property supply shortages for sales and letting persist.
Just before the market peak in 2007, average regional gross yields were much lower at 5-5.5% which were not sufficient to cover running costs and subsequent interest rate hikes. Investors at that point were speculating solely on continuing price growth and happy to accept cash losses on rental income after running costs, a very different picture from today.
Further analysis from Assetz illustrates that for a £100,000 property currently achieving an average 8% gross yield, £8,000 in this case, the value would need to grow by around 45% (and for there to be no growth at all in rents) for the gross yield to be reduced to 5.5 per cent. The most recent annual price growth reported by the Office for National Statistics was 4.1% across England, 1% in Wales and -0.7% in Scotland. London’s annual growth was 8.7% from August 2012 to August 2013.
Article courtesy of Financial Reporter