Buy now or regret forever? The data everyone is missing

0:01Hey everyone, it's Rob B here with Rob D and you were listening to the Property Podcast. Today's episode for me is up there with the secret property crash, the monopoly strategy, one of those episodes that you're going to listen to hopefully more than once and share with others because the data that we give you today helps you see an opportunity that everyone else is missing.

0:31Welcome to the Property Podcast. Thank you for joining us. In case you don't know, we run a business that buys more than£100 million over the property for our clients every year. You can find out about that at propertyhub.net slash invest. And while we're not negotiating great deals for our clients, we like to play around with data, run a few numbers and kind of procrastinate with data if we're honest. But sometimes when we do, we discover some gold. We discover something incredible. Today is one of those days and we're going to share it with you in just a minute. It's time for our new story of the week.

0:57And the news this week is the Bank of England have held interest rates. And as a reminder, they're at four. They have stayed at four. And Rob, it looks like for the foreseeable future, that's exactly where they're going to stay. Seven members of the committee voted to hold rates. Two voted for a cut. But analysts believe even with some of the committee wanting rates to come down, it's not going to go anywhere for the rest of this year. Boo. Boo indeed. Indeed. And some analysts seem to believe that we're also not going to see any cuts next year, whereas another one believes that we'll see rates of 3 % next year.

1:32So I think in summary, what do analysts know? Everyone's just making guesses, whatever. Nearly as bad as podcasters. Yeah, exactly. Well, I hate to think what we said in our predictions at the start of this year, we'll find out in a few months time. But I think, Rob, this was all priced in. This is not really going to have much of an effect on mortgages. Mortgage rates are probably going to be sticking around about where they are. But as one of the things that we're going to talk about in this very episode, investments at today's mortgage rates might not actually look so bad. Today's episode is so exciting because this is a chance to update your beliefs and as a result get a huge leg up on everyone else.

2:05And sometimes we talk about this in a general sense. So like, you know, the belief that the debt is bad, the belief that you should buy properties with cash, all this kind of thing. If you have more helpful beliefs and understanding around these topics, then you will end up doing better than the people who don't. But today what we're doing is bringing you a far more tactical, current, grounded in how things are today type of example. Because the data we're going to share with you today, pretty much no one will be aware of. No one will even believe when you show it to them. And as a result, they are operating with faulty assumptions about how the world is.

2:36And by correcting that, you will be at a huge advantage. So we'll share that in just a moment. But before we do, we need to explain where this belief came from in the first place and the journey that we've been on as investors over the last few years. So let's deliver on the promise. Let's get into the data and help you see the opportunity that pretty much everyone is missing right now. So first of all, we need to talk about interest rates. So they're a big part of this story. Interest rates, no surprises, no news here, have been falling. So they peaked and they peaked back in August 2023 at 5.25%.

3:13Now, the Bank of England left them there until August 2024. And then they've started slowly, and it has been slowly, slowly cutting them. And now, in September, our latest rate is at 4%. So that's 1.25 % from its peak. So we've seen it come down quite a bit. Now, this paired with rents is where you start to understand what's happening and what we're going to talk about. because rents over the last few years have been booming. We have talked about it and people who listen to the podcast understand that and it did make a bit of media but generally it's not talked about that much but rents have boomed over the years and if we go back to the same date of when interest rates peaked in August 2023 your average UK rent then was£1 ,777.

4:09pounds. But today, they're£1 ,344. So that's a jump of£167 per month. That's how much rents have moved while interest rates have been dropping. So let's put this into context. How would that impact your property investment? Let's look at the numbers. Rob, you can be our Carol Vorderman today. Please, can you do the numbers? Happy to do it. So we're going to look at an example of a £200 ,000 property that you bought with a 75 % mortgage. And we'll start back in June 2020. June 2020, a tricky month for various reasons of things going on in the world, but very, very good if you're trying to get a mortgage because the base rate had just been cut to 0.1%, historic lows.

4:53And as a result, the average mortgage rate was also very low. The average mortgage rate according to MoneyFacts was 2.59 % for a two-year fixed buy-to-let loan. So June 2020, you're going out and getting a 2.59 % mortgage. And the average rent in the UK, according to the ONS at that time, was£1 ,025. So if we put aside all your other costs for a moment, so we're just looking at the impact of the mortgage, after paying your mortgage, you're left with£700 in cash flow. Rents come in, mortgage has gone out,£700 left over. And 2020 was a year where everyone was very bullish on property. In fact, property prices went up by over 8%.

5:33The good times. That was the time to invest, right? Nice cash flow,£700 a month. Property market on the way up. And then we had some changes. Changes that nobody really wanted. I don't think anybody wanted these changes because interest rates didn't go up a smidge. They rocketed. And by February 2024, with the base rate at 5.25%, mortgages at that point were on average about 5.95%. So we've seen mortgages go up from 2.59 to 5.95. Rent has gone up, so that's pleasing. Rent's gone up from 1 ,025 up to 1 ,227. So rent has gone up, but because the interest rates are so high in 2024 and the rent hasn't gone up enough, your cash flow has dropped from£700 a month down to£483 a month.

6:29And there's no wonder then at that point that the property market is stagnant, the property prices aren't moving. Who wants to buy in this market? Your cash flow has gone down from£700 to£483. pounds. Clearly, the market is not as a good point in February 24 as it was in June 2020. But this trend has continued, Rob, as we've said already. Interest rates have gone on to fall from February 2024, and rents have continued to go up. So where are we today? Well, today, so about a year and a half on, the base rate has come down dramatically. We were at the peak of 5.25 we are now at four four percent base rate that means that the average mortgage rate has also fallen the average mortgage rate for an investor on a two-year fix was 5.59 that's now come down to 4.98 so it's dropped by about one percent we're now out of the fives we're into the fours happy times so mortgage rates down rents have continued to go up the average rent now, according to the ONS, is£1 ,343.

7:37So that means after collecting today's average rent and paying today's average mortgage, you're left with£720 in cash flow. Hang on a minute, Rob. That's better than it was in 2020. But that's the year that everyone wanted to buy and the property market was booming. Now it's terrible. Everyone's telling us so. And we will get onto that. We will get onto sentiment because that plays a big, big part in this opportunity. and that's what this is. Dear listener, absorb this. This is your moment. Now is a better time from a numbers point of view to buy than it was when everyone thought the market was incredible.

8:16The numbers right now are sensational when it comes to property. Those numbers, those returns are super strong. They're really, really good numbers and here's the thing. This is probably going to continue for a little while longer and not only continue but get a bit better because rents are continuing to go up not as fast as they were but they are up by nearly seven percent in the last 12 months and even if the next 12 months it's half that rate that's still increasing still improving the cash flow but the markets are all pricing in for interest rates to fall further and even fall again this year to sub four percent to 3.75 percent so those numbers in six months time could be even better again.

9:02And this is the point. This is the opportunity that people are missing. The numbers, put your emotions aside at the moment, and we will talk about all the sentiment and all the negative things, and they do exist. We will get to that. But put all that emotion aside, the voice inside your head that's saying, yeah, but what about? Forget that. This is just data. And the data, the numbers, tell us that the returns are better now than they have been for a number of years. A long, long time. The numbers are brilliant in terms of a returns point of view. Now you may say, will we get capital growth and all the rest of it?

9:41But here's the thing, markets don't allow value to last long. So what do I mean by that? When there's value in a market, eventually it gets noticed and you see this in stocks and shares where people do value investing at some point you can buy shares that have value and that's what Warren Buffett has made his billions from doing. The UK property market right now has value and you only get value in companies and in markets when sentiment is really poor so there's a belief a negative feeling around a market or a company and the numbers disagree with you and the numbers are disagreeing with the sentiment right now the numbers are saying the returns are great and the best they've been for a long long time and we're talking many many years but the sentiment is telling us not to and that's where the value is that's the moment we are living in that moment now yeah the great thing about this is we've made this observation based on real data and also very well established trends So mortgage rates are very much on a downward path.

10:47How far are they going to come down? How fast are they going to come down? No one knows. They're not going back to that 2.5 % from 2020, but they are going to come down. Rents are going to go up. By how much, we don't know. But if you look back through rental history, even look back through property crashes and all the rest of it, it's very, very rare for rents to come down. So we're already at a point where rental inflation has left us with numbers that are better today than they were in 2020. And they're just going to keep getting better. Of course, that doesn't mean that everything's perfect.

11:16We haven't talked about arrangement fees on mortgages. They're a lot higher than they were a few years ago. So that's going to skew things a little bit, but they as well are coming down. We haven't talked about the government and all the things that are happening with rental reform and all the rumours about what they might do about tax. All this is true and nothing is ever perfect. But the point is, you can go out and buy a property today that's going to leave you probably at least as well off as you would have been than if you'd bought it in 2020, 2021. and critically you're doing that in a market that no one else is that interested in buying in so rather than getting sucked into bidding wars and finding it really hard to get an offer accepted you can go out there take your pick and drive a really great bargain and long may this continue because the deals that we're doing at property of invest at the moment are fantastic they are really strong deals when the market was the best time to buy in recent years when it went up by 8%, we would rarely see a discount in double digits.

12:098 % was the absolute maximum we were seeing. We've just done a deal at inner city center for double that. Now, that doesn't happen very often. I don't want people's expectations set at that level, but we've just achieved that. And that's not off an asking price. That was off sold prices. Crazy opportunities at the moment. You don't have to use us. The opportunities are there. Just put the work in yourself if you don't want to use property of invest. This is not about that. The point is, the opportunities are there because the market is so favourable to buyers, but the numbers are great as well because nobody's noticing.

12:42And as we've said, it may even improve further over the coming six months. But why is this allowed to happen? Well, the sentiment. There's possibly some of you listening right now that may be a little frustrated, angry even. We had a comment in recently with somebody quite emotional about a recent episode one of our guests misspoke and said inflation was on the way down it's on the way up which we'll come to at the moment but then went on to say how we sugarcoat things and we don't talk about the negatives of the market well dear listener we got you we're going to talk about the negatives because the negatives are important here how can this opportunity exist well it's because of these negatives and it starts it doesn't end with but it starts with the media.

13:25The media is doing a cracking job of making people feel quite negative right now. Not just about the UK property market, but the economy as a whole. The world as a whole actually. But the economy, the UK, property, UK stocks, anything related to the UK. I'd say the media is doing a fantastic job of reminding us why things are bad and things are not in a good place right now and that might be fair some things may not be in a good place right now but when you are fed that as a nation day in day out it's no wonder that people believe it all to be true and some of it may be true but not all of it is true and the data rob let's be fair we've used data here to say hey here's an opportunity but there is data to show that the uk as a whole isn't doing that great right now.

14:21Yeah, I don't think it's any secret that things are not going particularly well right now. And the degree of not well and whose fault it is and what you should do about it, that's all a matter for your political beliefs or what the media is telling you or whatever. But the data is showing that things are not going particularly well. Inflation is not running away out of control in a way it was a few years ago. But you wouldn't say it's in control either. Inflation is still making itself felt. I think everyone has the feeling that they are experiencing it to a greater degree than the data would tell us that inflation is overall.

14:51Also, unemployment is rising. The economy is not doing brilliantly. Productivity continues to be woeful. And then there's the government. And the government's borrowing, because government borrowing is way up, way more than it was supposed to be. And let's talk about the government. Because another reason sentiment is so poor right now, and when we talk about sentiment, we're not just talking about the UK property market, we're talking about everything within the UK, the economy and beyond. The government hasn't helped. This one and the last, actually. So let's not blame sides. We voted this lot in, we voted the last lot in.

15:24And I don't think it's unfair to say that people aren't feeling very positive or confident about the things they are doing to the UK economy and to the UK property market. The trend of looking to chip at landlords seems to have continued on from the last government. Most of it is noise at the moment, it must be said that's where sentiment comes in right most of it hasn't happened a lot of people have talked about lots of negative things happening by this current government to UK property investors but as of this recording it hasn't happened yet and what may happen probably won't be as bad as people believe it to be there's a lot of fear but fear can sometimes be turned into false expectations appearing real the fear is probably going to be bigger than the reality and that fear creates that negative sentiment and then we just got a general negative attitude right now to the UK as a nation not everybody but I'd say more than ever people feel quite negative about the UK and this is not just the UK thing internationally where I've met people who are living outside the UK it's probably the most negative they've been about the UK as well we're doing a great job of beating ourselves down and broadcasting that to the world so there is this negativity around the UK and then a lot of people who listen to this podcast because there's a lot of people who live in these areas live in London in the southeast and the property market hasn't done too well there at all and the returns still aren't great in a lot of those areas but there are pockets that are doing well which we've discussed on the podcast and doing very well but with the media base in the southeast if you are living in the southeast and you're experiencing all these other things we've talked about you've got every right to feel like things are pretty bad right now but it's important to recognize that we've often described this as how people feel and that's again where opportunity comes in because it's how people are feeling right now which has meant that people are missing an opportunity and it could be argued rob that some of the feelings are dated.

17:32This is something that we see a lot, especially in property. People lock onto beliefs and maybe they were true at a point, but they hold onto them long after the point where it stops being true. So for example, you still see all the time, oh, property prices are rocketing out of control. So need to get on the housing ladder. What are we going to do? They're not. Property prices have not been rocketing out of control for a long, long time. As we've covered multiple times, they've been growing more slowly than inflation for years, which is why in real terms they've come down 15 to 20%. But try talking to someone who doesn't listen to this podcast and convincing them that house prices have come down 15 to 20 % in real terms.

18:07They are not going to believe you. You can show them the chart, they're still not going to believe you because people just cling on to these beliefs. And I think it's the same when it comes to rental returns and overall profitability like we're talking about here. The base rate was 0.1%. It was then 5.25%. That's a huge difference. So obviously your belief is going to be, well buy to let just doesn't add up anymore and there was a period of time when that was true but we've now gone through the numbers and we've showed no based on where we are now by the time you account for where rents are now it's actually as good as it was in 2020 and likely to get better hardly anyone who doesn't listen to this podcast is going to believe that and they're going to continue rob i think to believe that the numbers don't add up for quite a while to come even when this has been going on for a while and even when the numbers have become even better than they are now.

18:54But the truth is, things have changed. The numbers we shared with you are the reality. So while people may feel negative about the market and the UK property market, the numbers are telling us a different story right now. The numbers are telling us that now, based on returns alone, the UK property market is a great investment. Now, I can still feel some people, I can feel it over the airwaves that people are cringing and reacting. There are some of you there. That's hard to overcome and that's why it exists in the first place and may last a little while longer and the buying opportunity may even improve over the coming months.

19:36Returns could go even further and become more attractive but at some point it'll become too obvious. You can't have returns like this sitting in plain sight for that long without people noticing. At some point, people are going to go, wait a minute, I can get X return from property and I'll get some capital growth as well. And I can leverage. Hmm, maybe I should have a piece of that. So while you are on the front line, you are ahead of this and you are using information like this to take full advantage of it, eventually the market will catch up. Those value investors, I referenced earlier, Warren Buffett and all the rest of them, they make those incredible returns because eventually the market sees what they see.

20:21They cut through the noise, they cut through the sentiment, they look at the raw numbers and make investment decisions. And if you are looking at the raw numbers now, the buying opportunity that we have in the UK property market based on returns alone is the best it's been for a number of years. You might not like it. You might like it. Wherever you feel about it doesn't matter. Based on returns, that's the truth. And value does not last long in a market. We might get another six months of this. We might get 12. But at some point, the market people will realise, will start to buy in. Those returns will go down.

20:59Property prices will go up. And that's okay. That's what will happen. that's a normal market behavior. But the reason why this is an incredible buying window and buying opportunity right now is that's not happened. And because more people will come into the market, prices will increase over the medium term because of the dynamics in play right now. I'm really excited to bring you what is basic data, basic information that everyone seems to be blind to and that's the beautiful thing it's not rocket science it's just basics that people are missing and that's what i absolutely love doing these type of podcasts i loved it when we did the secret property crash and we produced information that is just again sitting there in plain sight that nobody else seems to be seeing but when we bring you this stuff please use it like share this with people you care about so they can make better decisions take the action for yourself you said at the beginning of the year right this is going to be my year i'm going to invest and maybe the fear and the market scared you off from doing so listen to this again and again until it sinks in the noise doesn't matter the data does and the data is telling us the time is now well as if that was not enough before we finish we've just got time for hub extra the part of the show where we bring you a tool a tip a resource something that might make your life a little bit better and this week's have extra came courtesy of producer dan who brought it along almost apologizing as he went about how boring this was but no no this is not boring maybe this is something about me but i think this is super exciting what we're talking about is rifo.ai r-i-f-f-o and this is an ai tool that automatically organize all your files for you so if you're one of those people with files and folders spread all across your desktop so it's just completely filled up with icons.

22:49I know there's a lot of you out there. I see you on those screen shares. If you're one of those people, you can use this tool to automatically read the document, see what's in there, give it a file name based on that that actually makes sense, and go and automatically put it in the right subfolder based on that theme. And what Dan said he'd used it for was organizing all his property documents. So rather than just having a file name which is a string of numbers, or maybe it just says receipt.pdf, it'll actually go in there and figure out, oh, this is a receipt for an Ikea table that was bought on this date and it'll label the file with that and with the date so when you need to send it across to your accountant later you can actually find it without searching it through and there's something i can't wait to try out because i've got so many files that are all just called scan and then some number and i have no idea what any of them are so the promise that a tool could sort all this out for me rob i just want to end the podcast now if i'm honest i want to go and tidy my digital life or rather have it done for me i can't believe rob i think you're more excited about this than the data we've just shared with everyone Well, I get it.

23:46I can't wait to have a play around with this one as well. Right. We will be back same time, same place next week with another podcast. Do share this episode with people. Help them understand where we're at right now. If nothing else, just to help them understand that things aren't always as bad as they seem. And there are opportunities out there. They might not suddenly become property investors, but they might feel a little better about the situations that we're in and realize so much of what we deal with day to day is noise. And that noise holds people back. But we don't want to hold you back.

24:16We'll leave you to crack on with your day. Thanks for listening, everyone. Take care. Have fun. Bye-bye. Bye-bye.