DEAL OR NO DEAL?

Posted on Friday, February 28, 2020


DEAL OR NO DEAL?

With all the changes in recent legislation around mortgage tax relief, Section 21 notices and huge swathes of paperwork and legal compliance, we're getting a lot of questions from existing clients about whether it's still possible to make money as a private landlord. We’ve also noticed a huge drop in the amount of people registering to buy property as a rental investment because the perception of buy-to-let has changed from one of easy money, to something less obviously so.

There’s been lots of talk in the office on the subject as well and, while buy-to-let is a different proposition to a few years ago, it is still a viable business, although the rewards are now mainly in the medium to longer term, rather than overnight. That said, you'll still get a better yield than any savings account will give you.

If you are considering buying a property to let in either Reigate or Redhill, you should first consider very carefully about what you are looking to achieve: initial rental yield, or long-term capital growth. Ultimately, an established area that has consistently high-demand for longstanding specific reasons will give you long-term capital growth, while cheaper areas to buy tend to have a greater initial yield (often at the expense of capital growth). However, it possible to have the best of both worlds by identifying an area that is cheaper now, but has some tangible regeneration or infrastructure improvements on the horizon that will see its values and demand rise.

Fortunately, Reigate and Redhill are fine examples of all options, with the established Sunday Times List desirability of Reigate's shopping, schools and property offering excellent prospects for continued capital growth, while the cheaper property prices (and commuter-friendliness) of Redhill deliver better initial yields, and will soon deliver higher property prices as well once the regeneration is complete.

One of the interesting things between Reigate and Redhill is that, while there is a big difference in purchase prices between the two towns, when it comes to the rental market, the picture is a split one. And for apartments, the gap in rents is marginal.

Much of Redhill’s rental market is made up of professional landlords renting to younger commuters who are led by the convenience of Redhill’s mainline station.  Being able to reach London Bridge or Victoria in less than 30 minutes means journey times are shorter than many Londoners spend on the tube or bus each morning, and the attractiveness of the swift commute has pushed rents for apartments in Redhill very close to those in Reigate. While Reigate still just about has the edge, the difference is very slim indeed, often only £50 per month for comparable apartments in the towns. So when it comes to apartments, convenience is almost always the winning factor and rental yields for apartments in Redhill are currently running at around three and a half percent gross, with those in Reigate somewhere around the two percent level.

Redhill’s large regeneration programme is going to make the town attractive on a whole new level and could well draw people from Reigate as Redhill's town centre improves with more shops, more restaurants and more culture and entertainment with the new cinema. What that will likely mean is that the yields for people buying now will increase as rental values rise when the regeneration is complete, while for people buying later, higher sales prices will be payable adding the element of capital growth into the equation.  So for landlords looking to combine a better yield with capital growth, getting in on Redhill during the early stages of regeneration is clearly a sensible option.

Over in Reigate, and particularly when it comes to houses for rent, the story is very different. Many people move to Reigate specifically for the schools, and the rental market is far more based around families and houses than in neighbouring Redhill. Reigate’s rental market also has a higher contingent of private landlords, particularly those renting out their former home: perhaps they're going overseas – whether temporarily or permanently – or they're simply retaining an existing property while upgrading locally.

It is Reigate’s schools that many people move here for, although the delightful lifestyle and regular appearance in lists of the best places to live in England contribute a lot to the demand for property. As well as families new to the area, there is also a market for those already in Reigate renting a house temporarily while their own is either renovated or extended (or indeed built). People want to stay local while works are underway so their family life and schedule can be maintained, but without living in a building site, and renting a house nearby allows them to oversee the works, while not having to live with builders every day.

All of this contributes to making the difference in rental values for comparable houses in Redhill and Reigate much greater than for apartments, because the audience tends to be more affluent and driven by local lifestyle, rather than commuting convenience. It is extraordinary how much a good school can add to both the sale and rental value of a home, not to mention Reigate’s extreme sense of family friendliness, its vibrant dining scene, and its genuinely charming high street of mainly independent designer boutiques that has become a firm shopping destination for people from London, Brighton and all over the South East.

However, with huge demand and a national reputation comes higher property values, meaning rental yields in Reigate are lower than in Redhill, generally around two to two-and-a-half percent.

Whichever town is right for you, and whether you are looking for yield or capital growth, demand for rental property in Reigate and Redhill is also driven by the presence of large companies headquartered here. Organisations like Santander, Total, Towers Watson and Royal Sun Alliance ensure a continuous demand for both temporary and permanent accommodation, meaning both towns usually have plenty of people looking for property, both to rent and to buy.

If you'd like to know anything more about buying a rental property in Reigate or Redhill, becoming a local landlord or about local yields and capital growth, then please do get in touch with one of our teams.