This month I wanted to spend some time focusing on the current market and whether you - yes YOU - should be looking to buy investment property, whether it be your first, your tenth or your hundredth - the pluses and minuses if you will. There are pluses of course, and once we’ve got into those, I will talk about what to buy, where to buy it and why that all makes sense.
Pros and cons, first, then. I have seen adverts this week for savings accounts boasting a 5.5% rate of interest. That’s the first time for decades - and also needs to be approached with caution. There are regular savings accounts paying more like 7.5%, but that’s not the interest you will achieve if you have a meaningful sum to invest, nor is it what you actually receive as it is a regular monthly savings style account, which really only operates as a “lead magnet” to attract your business at the bigger banks and building societies, hoping you will do your profitable (for them) banking with them, as well as your saving.
The number is more like 4.5% or so for decent volumes of cash - still, not bad, but below inflation of course. It does need to be stated plainly however - this is a no risk, and no effort, return. You can fix for longer by entering into bonds and get more like 5.5%+ annually for 2 year commitments, and even the same for 5 year commitments - for up to £1m if a) you have it and b) you would be happy putting the whole lot with one financial institution. Some smaller banks are at 5.75%, even though they can theoretically borrow money from other banks at around 4.75% for a 5-year period as I write this (the smallest banks of course WON’T be able to borrow at that rate, because that specific rate will only be reserved for the mega-cap banks). It is this rate that defines our mortgage rates - and that brings us on to one of the biggest “cons” in this current market - emphasis is deliberate! We are paying these sorts of rates on our borrowing - 5.75% - with a chunky fee also attached. You absolutely do need to consider all costs to make a deal stack up in reality: