Despite political and economic uncertainty, or maybe even because of, it’s a great time to invest in property in the UK, especially for those looking for a long-term investment. And as newspaper headlines focus on the doom and gloom of the property market and with recent regulation and tax changes to the buy-to-let sphere, many would assume now wouldn’t be the right time to invest in property.
However, population growth and current housing market conditions, such as low property prices, high rents, strong demand in the rental sector, and the current phase of the property cycle, prove it’s likely to be a great time to invest in property in the UK if you’re investing for the long term.
House price growth has slowed down since the EU referendum vote in 2016. Earlier this year, the UK even saw the weakest national growth rate of average property prices since 2012, according to data from the Office for National Statistics.
The south, particularly London, has seen the biggest decreases in prices. A recent article in The Guardian stated prices throughout the south of England fell for the first time since the recession of 2009. Having peaks and troughs, house prices often fluctuate, so when prices drop, it can be an advantageous time to invest in property.
Currently, the UK property sector is considered to be a buyer’s market as buyers boast better negotiating opportunities. The average price of property coming onto the market has even decreased by 1.3%, which has amounted to £3,904.
Across the board, property prices are seeing less growth than usual. This opens up opportunities to get more bang for your buck. On top of that, interest rates are even lower than usual. This uncertain time makes for an advantageous opportunity to look for a bargain.
Currently, there is a shortfall in housing with demand outweighing supply. With a growing population, demand for residential properties is forecast to increase even more. Additionally, the number of people living in a household is decreasing as divorce has risen and fewer families live intergenerationally.
The population of the UK has grown year-on-year since 1982, according to the Office of National Statistics. This data shows the population in the UK is likely to continue growing. Long-term international migration has been a main factor for population growth since the 1990s.
Cities, towns, and regions forecast to see especially strong growth in population are expected to be exciting areas to invest in. University towns and cities are likely to be home to lucrative property investments as student numbers are expected to increase at a number of the UK’s top universities.
Strong tenant demand
If people continue renting at present levels, UK renters will outnumber homeowners by 2039, according to research by VeriSmart. At the moment, homeowners account for about 65% of the property market, which is a decrease of 5% since 2010. This is forecast to fall to 49.3% within 20 years and 45% by 2045.
The UK even has the fifth highest percentage of tenant occupiers across EU nations. Generation Rent is a big part of this trend as younger people feel less urgency to leave the rental sector. Home to some of the top universities in the world, the UK is attracting overseas students who are further increasing demand for rentals.
Many tenants have faced increases in rent recently. As there’s demand for more properties in the private rented sector, rent is expected to continue to rise across the UK. According to ARLA Propertymark, the number of tenants facing rent hikes hit a record high in 2019. In each month in 2018, an average of 26% of renters dealt with rises in rent compared to 46% on average this year.
The supply of rentals increased this year. However, with a growing number of renters and an increased number of prospective tenants, rents are expected to increase even further, especially in areas with strong rental demand that’s not being met by supply.
Housing transaction volumes
Looking at transaction volumes in the property market can help determine the health of the housing sector, according to Which?. The EU referendum surprisingly didn’t have much of an impact on the number of sales as the UK property market has shown resilience.
Although transactions fell at the beginning of 2019, there has been an increase in sales during recent months. And many reports forecast property transactions to pick up in 2020, which shows the UK property market is healthy and has room to grow.
The property cycle
Learning about the theory of the property cycle can help investors make the right decision at the right time and can be a pivotal part of your investment strategy. The length of a full cycle comes to approximately 18 years, and each cycle is divided into four stages, including the recovery phase, mid-cycle dip, explosive phase, and recession phase. Naturally, socio-economic and political conditions, in addition to supply and demand, impact the market and cycle as well.
Currently, we are thought to be in the mid-cycle dip as price growth has stalled across the UK. We’re moving toward the explosive stage, which is then followed by a recession phase. It’s important to keep in mind that many property professionals are forecasting prices to drop in the coming years.
The outcome of Brexit could cause prices to drop in 2020, while the property cycle predicts the recession phase to start around 2026. Buying and selling for profit will likely be less lucrative, so it can be beneficial to focus on areas with high tenant demand, especially in areas where supply isn’t meeting demand. This can lead to more lucrative yields and less void periods.
As each property cycle starts over again, house prices recover after time, and a new cycle typically begins from a higher “bottom” than the one prior. Prices are projected to be volatile along the way, so investors who plan for the long term are typically more likely to see financial gains.
If you’re looking to invest for the longer term, lower property prices paired with higher rents, a growing population, and strong rental demand are contributing to now being a great time to invest in property in the UK.
For those new to investing, it could be beneficial to take advantage of these market conditions and look at taking the plunge into the property investment industry. And if you’re a property investment expert, now might be the time to add to your property portfolio.
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