As property investors, we often face making a choice between obtaining a good yield or the prospect of capital gains.

Locations that traditionally offered a decent yield have disappointed on capital growth over the years. Conversely, property in areas such as London never provided stellar yields but had generated stronger capital growth over the years.   

However, right now with higher (and still rising) interest rates, UK property looks to be struggling on both cashflow and capital growth.

In fact, capital values in the prime central London market peaked around 2014 without any recovery since. As for higher yielding areas, some properties there are struggling to generate positive cashflow - particularly with current mortgage rates at 5%+.  

Today, for a new buy-to-let acquisition using a 75% LTV mortgage, you would likely need a gross yield of around 7% to break-even and generate a positive return on investment. (Editor’s note: see mortgage commentary on page 33)  

In today’s property market both capital growth and cashflow are scarce commodities. Particularly for new vanilla buy-to-lets acquired with a mortgage. Even then, if you find a positive cash-flowing opportunity, remember that corporation or income tax will be incurred on your profits.   

The bar has been set higher for property investors who will need to be more creative on deal structuring to either reduce acquisition cost or leverage. Alternatively, focus on higher-yield strategies, which might entail more hassle, regulatory compliance or other risks compared to regular BTLs.  

As a property investor, despite the more difficult environment we find ourselves in, I remain an advocate of a diversified investment portfolio which includes property. New opportunities are challenging so I will restrict new acquisitions but I have no plans to sell my existing properties.