There is an ongoing debate about whether property is a good, viable investment to make in the current climate.
The Office for National Statistics (ONS) recently released statistics showing that prices have risen 1.2% over the past 12 months as of June 2019. On the face of it this isn’t a terrible result, but when compared to the 2% annual inflation, house prices across the UK have seen a fall in value in real terms.
Although on the face of it this result is less than desirable, there are still strong signs that property is a great investment in the UK. The long-term story for property investment is generally strong.
The past decade has seen a rise of 31.4% in average property prices across the UK, greater than the rate of inflation at 24.9%. Considering we are in the midst of a major economic shift, should the result of Brexit be a no-deal, this is not a bad result in the scheme of things.
The rise of rental income
Looking past capital gain on property, rental income is playing a key part in the success of current property investors. With interest rates hovering at a low level in recent years, rental yields are offsetting the relative lack of capital gains – this is particularly relevant for those outside of London.
Yields have risen in recent years at a much greater rate than property prices. However, you have to be careful here – some areas of the UK are seeing profitable rental yields whereas other areas are less attractive.
One such area that is seeing higher than average returns on yield is Manchester. Due to the effects of ‘Northshoring’, cities in the North are seeing increased inward and overseas migration as a result of increasing job opportunities, radiating out from the tech sector.
With a growing university and increased quality of life, with greater ease of transport and improved entertainment options, Manchester is seeing major capital growth and rental yield increase. It is important you identify areas that are ‘up-and-coming’ in an attempt to time the market perfectly, snapping up property at lower prices.
Taxation and the property market
We have seen some recent changes to tax in relation to property in recent years, notably since 2016. Supplemental stamp duty came into effect, adding a further 3% charge to purchases of residential property that is not intended as the prospective owners primary dwelling – a real hit to prospective landlords.
This was done in an attempt to increase the opportunities available for first time buyers, perhaps those that need it most. Whilst we cannot argue with the logic of this, it does have a negative effect on those investing in property. With an increasing number of people seeking rental property, this is not necessarily a good thing.
2017 saw additional changes made to mortgage interest tax relief, further increasing the expense for landlords. With interest rates looking to remain low for the foreseeable future, investing appears to be the obvious choice. Property is a secure, viable investment with opportunity in capital gain and significantly rental yield when compared against low interest rates in savings.
Additional considerations for investors
Gross yields clearly don’t paint the entire picture when it comes to property investment, however. On top of taxation, you have to take into account maintenance costs, mortgaging and period of vacancy in the property if you are letting the property.
It is important that this is planned for before you invest in property and ensure that you are located in the best areas and targeting the right demographics (think students) in an attempt to mitigate these considerations. Where some landlords are turning to limited company structures in an attempt to overcome some of the challenges brought on by the 2016 changes, this process is often convoluted, and you should seek financial advice before undertaking this approach.
Opportunities in the market?
If you are an investor looking to enter the market, the low entry price is of course a great benefit. whilst many will be waiting to see the result of Brexit, you could argue now is the best time to invest – especially in buy-to-let.
The imbalance of supply and demand in the market should continue to see an increasing number of people seeking rents. Landlords are forecasted to continue seeing increasing demand from across the UK and from overseas, regardless of the result of Brexit.
Global investment will continue to rise for this asset class. With sterling currently sitting at the lowest rate we have seen in decades when compared to other popular currencies in euros and dollars, we expect to see high demand from overseas investors for UK property assets, both commercial and residential.
For residential we expect overseas landlords to focus on returns from buy-to-let, thus providing more options for those in the UK to have the option to rent, a win-win. Build to rent in the UK is also seeing substantial increase, with off-plan property also rising in popularity over the last few years.
Time to invest
With inflation at a low level, if you have disposable income or savings, you really should be looking at ways in which to invest your funds to at least match inflation – otherwise you are losing money in real terms. There are many ways to invest in property, not just by conventional means via buy-to-let through traditional investing, but through alternative property assets.
There is a rise in popularity for many alternative ways to invest in property, notably loan note investing. Loan note investments are similar to a bank loan, whereby the investor loans money to a property developer, with the loan amount paid back in full plus interest.
With interest figures known to be as high as 12% over 12 months, and investment amounts as low as £5,000, there are many ways to get into property investment and increase your money, without the need for significant start-up or commitments to buy-to-let. Property is still a secure asset in the current economy, perhaps an even more attractive one than other conventional investments.