A long term capital growth strategy

  • 18 Apr 2016

‚ÄčAn interesting article on LandlordZone suggests that Clause 24 leaves landlords no option other than to switch from a yield strategy - perhaps operating at cash flow neutral or even a slight loss - to a long term capital growth strategy.

My feeling is that this is only work-able for landlords who enjoy significant other income to prop up their portfolio in the event of voids, interest rate rises etc.

I have also always believed that you have to have positive net yield to remain in the game long enough to enjoy capital growth!

Net yield is cash in the bank today which you can spend.

Capital growth is completely speculative and subject to many issues such as the world ecomomy, the British economy, factors in the local area, interest rate rises, availability of mortgage products, confidence in the property market, etc.

Therefore, banking on capital growth is akin to gambling imho.

We have heard today that, according to the latest ONS data on house prices, the value of the average home in the UK increased by 7.9% in the year to January 2016, a rise of 1.2% compared to December 2015.

The report outlined that annual house price inflation was 8.6% in England, -0.3% in Wales, 0.1% in Scotland and 0.8% in Northern Ireland.

The driving force behind the increases were believed to be an 11.7% rise in the South East and a 10.8% rise in London.

Taking London and the South East out of the picture, the rest of the UK enjoyed increases of 5.1%.

Seasonally adjusting these figures shows that average house prices increased by 0.9% between December 2015 and January 2016.

According to ONS, the average price for a home in the UK now stands at £292,000.

The supply/demand imbalance suggests that property prices will continue to rise across parts of the U.K., but again, none of us have a crystal ball.

So those landlords who can potentially adopt a capital growth strategy are those landlords who invest in London and the South East.  Where does this leave landlords with properties in the North?