The ebb and flow of the property market has always tested the mettle of investors. Today, many Buy to Let investors are feeling the strain of “negative carry” — where their rental income is lower than the total expenses on their property. It is thus imperative to examine the larger historical and future context before making the crucial decision to retain or sell one’s Buy to Let property investment.
Historical Property Growth in the UK
Historically, the UK property market has demonstrated a consistent pattern of growth. Over the past 30 years, property prices have risen consistently. For instance, according to the Nationwide House Price Index, since the early 1990s, UK house prices have surged by over 400% representing an annual growth rate of around 5%, significantly outpacing UK inflation rates. Such long-term growth trends underscore the resilience and potential of the UK property market.
Future Upswing in Rental Income
Although negative cash flows present a challenging environment today for many Buy to Let homeowners, it’s essential to look ahead. Rental income yields are set to increase in the upcoming months. With an increasing population, and a tightening supply in the real estate market, coupled with continuing urbanisation trends causing professionals to move to cities, the demand for rental accommodation is expected to sustain into the near future. Those who persevere might reap rewards when the rental market strengthens.
Property Prices: The Bigger Picture
Short-term fluctuations might paint a gloomy picture, but property prices in the UK have historically always trended upwards. The chronic shortage of housing supply in the UK is a long-standing issue. From 1991 to 2021, the average annual rate of growth was approximately 3.9%, accounting for inflation. With demand consistently outstripping supply, property values have a strong foundation.
Beyond immediate short-term returns, property investment in the UK has been a long-term hedge against inflation. With the pound’s purchasing power at the mercy of inflationary pressures, tangible assets like properties tend to rise in line with UK inflation rates and remain a wise store of value. Rental income alone can be increased by landlords, keeping pace with inflation. Selling your Buy to Let property now might provide liquidity today but at the cost of long-term capital appreciation that often beats inflation rates.
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