Why would an Oxford landlord sell her properties?

I’m not often surprised to be asked a question by one of my landlord clients, but I am finding myself asked the same question by lots of landlords - client and non-client alike. For most of those who have asked this question, the answer seems to me to be so glaringly obvious, I’m surprised it’s been asked.  So, what’s the question?

Should I sell one or more of my portfolio given the changes to mortgage interest rate relief?

One of my favourite clients posed this question recently, and I know she won’t mind me using her to illustrate why I am so surprised at being asked in the first place. 

The landlord in question owns two properties, one that was bought in 2005 and the other in 2011.  According to Hometrack’s City Index for Oxford, properties have risen on average by 51% since 2011 and by 80% since 2005.  Of course, much of the gain between 2005 and 2011 was wiped-out by the credit-crunch, which also triggered increased demand for Oxford rental properties from people struggling to secure the mortgage needed to buy.

My client bought the property in 2005 for £235,000 which was pretty much the average house price.  It is now worth £400,000.  That’s growth of 70%, some way below the Oxford average over the same period.  The property has new tenants paying £1,625pcm giving a return on investment of 8.3% per annum.  In aggregate – taking into account the compound annual growth rate (CAGR) in capital value of 4.53% and the 8.3% gross rental yield over the next 12 months – the property is delivering a gross return of nearly 13% per annum.

She bought the second property in 2011 for £265,000 and it is worth £435,000 today.  That total growth of 64% which is well above the Hometrack average for Oxford.  That’s a CAGR of 8.61%!  The rent during the coming 12 months will be £1,625 giving an annual return on investment of 7.4%.  Taken together this property is delivering a gross return of 16% per annum.

So, two assets one of which is yielding a 13% annual return and the second of which is delivering a 16% annual return.  At a time when the bank of England base rate is STILL at a quarter of 1%, building society accounts are yielding 1 to 2% per annum, and stock markets are running scared of Donald Trump’s global trade war-mongering, a solid, reliable, locked-in 13% to 16% return on investment is tough to beat.

One final thought – if you have assets in a market where the costs of re-entry are now so high (given the average price of Oxford property and the 3% Stamp Duty surcharge) why would you sell?  Unless you need the capital or know how you will invest it as securely and for a higher overall return, please, please, please recognise the value of the assets you own.