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Lies, Damn Lies and Statistics....
February 08
This story about the value of Buy-to-Let Investment continues with it´s ´smoke & mirrors´ routine.
Birmingham-Midshires released a report claiming Buy-to-let investors reaped an astonishing 16.3% average during 2007. Citing a 10.7% increase in property value plus income.
Which if you break it down means: the net income without ´estimated´ price increases was just 5.7%. So, if your Buy-to-let mortgage is more than 5.7% you are actually ´Negative yielding´.
Moreover, if there are any costs relating to the management, maintenance, insurance or realisation of the asset, this will come out of these figures.
Therefore this report is again misleading as it was last year!
Our Report from last August:
In another report from the Birmingham-Midshires (The branch of the Halifax/RBS which deals with the riskier part of the mortgage market like B2L) headlines with ´Landlords Make 13% Return on Buy to Let´........ However, when you read into the report is states gross yields of 5.5%, slightly down on last year, and estimated house price growth of 7.3%, totaling 13.2%. But hold on, any investment must be taken on the value of the property, not the leveraged amount. So if the yield is 5.5% and total mortgage interest (At 7% B2L SVR), then the proposition is losing 1.5% pa. minimum, NOT including management fees. In order to realise the asset, you have to pay fees (Bank, Solicitors and agents) which should easily eat 4% of the gross, your returns start to look closer to 2% net.
Again, it´s a headline figure which doesn´t bear scrutiny.
A report out 16th July said UK property values rose on average by 10.9% (YoY) a drop from previous months YoY figure of 11.3%. The report from the Department of Communities & Local Government notes the decrease but also says it´s double the YoY figures from May 2006.
Channel 4 reported this news under the banner "House prices are Slumping".... Are they sure they read the article correctly? Whilst the increase is DOWN from last month, increases in excess of 10% can hardly be described as ´Slumping´??
It only goes to confirm that you can´t quite believe everything you read in the press. Another article on property website ´findaproperty´ quotes a Frank Knight report saying increases in property in prime central London have gone ´Supernova´ with increases of 34.5% and 40% in super exclusive SW3 & SW10 (Chelsea & Kensington). This is where the damn lies are exposed by the statistics: The £4mil plus market in these areas is driven by the ´Uber-rich´ and overseas investment, where bank balances are ´unlimited´. It also noted that sub £1mil. properties rose at a modest 1.6%....
Many statistitions and analysts will tell you, you have to ignore the top & bottom 10% (Deciles) of any large data group to show you a realistic average. If this principle were included in house price data perhaps the previously mentioned figures would be slightly less ´Supernova´ and a clearer reflection of house price changes.
Oyster International are property consultants, we make sure the information you get is the right information and our analysis shows the truth behind the headline. Beware the alternatives.
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