A couple of articles back, I did a piece on the effect of the 0.25% base rate on the Derby property market. This time, I want to look at the situation that Derby ‘savers’ find themselves in.
What, you might ask, has the plight of Derby savers have to do with the Derby property market… well, everything in fact!
Read the newspapers, and every financial wizard is stating that with the decision of the Bank of England’s Monetary Policy Committee in early August to cut the Bank of England base rate to an all time low of 0.25%, savers should prepare themselves for interest rates to stay low well into the early 2020’s.
This isn’t some made up story to capture the headlines of newspaper editors. The yield on 10-year Government bonds is currently 0.61%. This indicates that the money markets believe that the Bank of England’s base rate will, on average over the next ten years, be below the 0.61% rate they are buying the 10 year bonds at – they would lose money if the average was over 0.61%. UK Interest rates are going to be low for a long time.
For those who have saved throughout their working lives and are looking for ways to maximise their savings, investing their money into property could prove advantageous. You see as a saver, I did an online search and the best savings rate I could find was a 5 year fixed rate at 2.5% a year with Weatherbys Bank. A £200,000 nest egg investment would earn you £5,000 a year – not much. However, on the other side of the fence, growth in Derby house prices and princely buy-to-let yields have made property investment in Derby an appealing option for many. According to my research…
The average yield over the last five years for a Derby buy-to-let property has been 4.6% a year.
Not only that…
…Average property values in over the same period have risen by 20.1%!
Using these averages, a Derby landlord’s property would be worth £240,200 and they would have received a total of £46,000 in rent – making the total return £286,200.
Meanwhile, whilst our 24,000 Derby saver’s, using the average savings rates for the last 5 years, their £200,000 would only be £221,184… even if they had reinvested the all the interest.
There are risks as well as benefits to buy-to-let though. As my readers know, I tell it like it is and investing in buy-to-let means locking up capital in a property that may fall in value. Another option would be stock market income based investment funds, which are paying around 5%, especially if put your nest egg into a tax free Stocks and Shares ISA. Although you can only add £15,240 a year into an ISA, you would also have the ability to sell up quickly if you want…
One last thought…
The other side of the coin is that you cannot buy an unloved ‘stock market income based investment fund’ and set about renovating it and adding value yourself. The investment fund isn’t something that you can touch and feel, isn’t something tangible, isn’t something physical, isn’t something concrete, it isn’t bricks and mortar … and that is why, my fellow Derby homeowners and Derby landlords, is why the love affair of the British and property will continue for ever!
If you are considering becoming a new buy-to-let landlord in Derby, what do you know about the Derby property market? Do what many established landlords do and sign up to my Blog where there is a catalogue of articles like this. Alternatively, ring me on 07977 235545, or drop me an email.