Some landlords have been speaking to me recently about stories they see in the press and their concerns about local property market. They have been concerned that property values seem rather high and were worried about paying too much for their next buy to let property. In the past few years, if you were going to be buying in Northampton, it was vital to ensure you build in some capital growth by buying cheaply or finding a way to add value.
As my regular readers of the Northampton Property Blog will note, the most important consideration you will make before investing in property is the balance between annual return/yield and the annual value increase/capital growth. However, what affects those two things (yield and capital growth) in Northampton are very varied and complex. The quantity of property and whether the property is owner occupied, social housing (posh words for council housing) or private renting has a big difference on yield and capital growth. Interestingly, property values in Northampton have increased by an impressive 7.1% in the last 12 months. So are properties too expensive?
Looking at the market and looking at every property sale in Northampton that sold in 2007 and again in the last few months of 2014, property values are on average 7.9% higher today in Northampton than they were in 2007 (the peak of last property boom). This is even more impressive when you consider they dropped by 21.8% in 2008/9 in the Credit Crunch years. Surely this suggests properties are too expensive in Northampton if they are 7.9% higher than the 2007 boom levels?
Well, the answer is both Yes and No.
Yes, the headline sales price that Northampton property is currently selling for, is on average 7.9% higher than 2007, yet No, because these headline sales price figures don’t take into account inflation. Since 2007, inflation has been around 26.2%. So instead of property values being 7.9% more expensive than the 2007 boom, they are in fact only 18.3% CHEAPER than the boom in real terms (7.9 % house price growth since 2007 less 26.2% inflation since 2007 equates to the -18.3% figure). People think inflation is a bad thing, eating away at the real value of your savings. It can however, be advantageous to property investors.
My answer to landlords is get the best advice and opinion you can. Speak to me, speak to others, do your homework and drive a hard bargain when buying, thus ensuring when prices do start to rise again after the General Election, you are in pole position.