Letchworth rents have risen by 18.6% since 2005

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The Letchworth Property Market is a very interesting animal and has been particularly fascinating over the last 12 years when we consider what has happened to Letchworth rents and house prices.

There’s currently much talk of what will happen to the rental property market following Brexit. To judge that, I believe we must look what happened in the 2008/9 credit crunch (and what has happened since) to judge rationale and methodically, the possible ramifications for long-term investors in the Letchworth property market. You see, an important, yet overlooked measure is the performance of rental income vs house prices (i.e. the resultant yields over time). In Letchworth (as with the rest of Great Britain), notwithstanding a slight drop in 2008 and 2009, property rentals have been gradually increasing.

The income from rentals has been progressively increasing over the last 12 years. Today, they are 18.6% higher than they were at the beginning of 2005. In fact, over the last five years, the average growth has been 1.9% per annum. From a landlord’s point of view, increase in average rental income is not to be sneered at. However, the observant readers will be noting that we are ignoring an important factor – our friend inflation.

Turn the clock back to 2005, and we have a property being rented for say £900 a month and that is still being rented at £900 a month today, in Spring of 2017. While the landlord is not getting any less income, this £900 is no longer worth as much. Let me explain, in 2005, £900 may have bought a two-week 4* holiday in Italy. Yet, holidays have increased in line with inflation (which has been 38.5% since 2005), so our holiday would cost today £1,246 (£900 + 38.5% inflation = £1,246). Therefore, the landlord could no longer afford the same holiday, even though having the same amount in pound notes from their rental property.

This means when we compare rents in Letchworth to inflation since 2005, Letchworth landlords are worse off today, when they receive their monthly rental income, than they were in 2005 by 19.9% in real terms (rents increased by 18.6% since 2005, less the 38.5% inflation since 2005 – net affect 19.9% drop)

Letchworth 162 graph

However, rental income is not the only way to generate money from property as property values can increase. Although in the short term, cash flows are diminishing, many Letchworth landlords may be content to accept that for a colossal increase in capital value.

Property values in Letchworth have risen by 74.6% since 2005

This equates to a reasonably salubrious 6.21% per annum increase over the last 12 years. Even more interesting that this includes the 2008/9 property crash, this will make those Letchworth landlords and investors feel a little better about the information regarding rents after inflation.

Moving forward, the prospects of making easy money on buy to let in Letchworth have diminished, when compared to 2005. Last decade, making money from buy to let was as easy as falling off a log – but not anymore.

It would be true to say, my rental income verses property prices study does lead to noteworthy thoughts. I am often asked to look at my landlord’s rental portfolios, to ascertain the spread of their investment across their multiple properties. It’s all about judging whether what you have will meet your needs of the investment in the future. It’s the balance of capital growth and yield whilst diversifying this risk.

If you are investing in the Letchworth property market, do your homework and do it well. While some yields may look attractive, there are properties in many areas that do not have the solid rudiments in place to sustain them. If you are looking for capital growth, you might be surprised where the hidden gems really are. Take advice, even ask your agent for a portfolio analysis like I offer my landlords. The clear majority of agents in Letchworth will be able to give a detailed analysis of past and anticipated investment opportunity (especially the awful effect of inflation) on your portfolio. However, if they can’t help – well, you know where I am, the kettle is on!

 

2 thoughts on “Letchworth rents have risen by 18.6% since 2005

  1. This is interesting. There is clearly a considerable difference in rental growth of properties that have been under a long term tenancy and those that have been re-marketed during the period, and so more likely to have had an increase applied. Even given this, I have Letchworth properties that we have owned since 2006 and the rents are now around 35% higher than in 2006. (we did not own in Letchworth in 2005) This is typical accross my portfolio.

    I often find that certain agents advertise properties at a lower rate than the market could take. Especially in Biggleswade, where there is one in particular that always has properties on lower than the maket can take. This could of course be the instruction of the landlord, but the point is, both landlord and agent should review the market when re-letting rather than simply re-advertising at the same old rent…

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    • Thank you for comment Trevor – this is an interesting point, well made. The advantage a good managing agent provides is the ability to analyse market trends and to be aware of what rents are being achieved. They should review the rent at renewal stage (for fixed term tenancies) and annually for those on Statutory Periodical agreements and ensure a landlord’s property is not falling drastically behind the market level, whilst at the same time balancing that with retaining a good tenant.

      We do often speak to Tenant Find Only landlords, for whom we have acted and found a tenant many years ago, who have not reviewed the rent they charge at all. This may be for various reasons – some forget; some don’t realise they can; some will think by leaving it, it means they keep a happy tenant and don’t need to consider the cost of improving a property and re-marketing.

      If an Estate Agent or Letting Agent is not considering what has happened to rental values when re-marketing for their landlord, they are not really acting in his/her best interests.

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