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  • Buy-to-Let

    High rental demand with low capital growth

    Dear all

    Is it possible to find areas of high rental demand with low capital growth?

    i.e.  my BTL is in area I know I can rent out easily but the house prices in that area according to right move haven’t increased that much.

    Thoughts ?
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    Surely you mean "high capital growth"?

    But in answer to your question - yes - the north of England ...   See North occupies top 10 places for price drops

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    Vanessa

    i mean it hasnt gained much capital in the past 20 years.

    how would that be? id have thought if the demand for renting it is high then that would mean the area is also on the rise, influencing the house prices.

    vague question would you classify the bottom as "good" growth? not sure what a good reference is.


    18th May 2018Property sold for £93,500
    2nd December 2005Property sold for £72,500
    16th August 2004Property sold for £48,000
    11th July 2003Property sold for £33,000
    16th April 2003Property sold for £23,000


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    Thank you for clarification.

    Yes, it is possible in areas where supply keeps just ahead of demand and where there is plenty of building going on.

    For instance, in the south east there is very little building land available and this keeps pushing house prices up as demand is ahead of supply.

    However, in the north, there are lots of old factories, industrial sites, and other brown field areas that can be converted to housing, so the supply stays slightly ahead of demand and this suppresses capital growth or, if there is too much over-saturation of new build, prices will actually fall.

    Additionally, the wages of the local people will impact house prices so if there are not high earning industries in the area, then there will be affordability restrictions as to how much people can afford to pay for property.

    This does come as a bit of a shock to those who believe the claim that "house prices double every seven to 10 years".

    From my own experience:

    4 bed house in Manchester purchased in 2006 for £180K, now worth £200K on  a good day.

    1 bed flat in London purchased for £147,500 in 2004 now worth £340K.

    I hope that goes some way to answering your question?

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    Whilst not set in stone - landlords will often look for a return of maybe 15% pa - and that is split across rental yield and cap growth.

    Hence in parts of London where growth was traditionally quite high - gross rental yields can be below 3% pa.

    Converse largely applies in the North where in deprived locations with nil chance of cap growth rent yield can be maybe 15% or more of the capital price of the property - but downside is high proportion of benefit tenants with all that entails.

    That said a handful of locations in North - notably Manchester are showing record capital growth whilst London has overheated and is stagnating.

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