We’re living in unprecedented times. The biggest global crisis for a generation has sent global stock markets into a tailspin, businesses into panic mode and when it comes to economic forecasts, all bets are off. We all face tough times ahead, and as more information is made available, it’s becoming clearer that this situation is here for the foreseeable future.
So, what can we do now to be proactive about our long-term financial future? Perhaps now is the time to reflect and review our savings and investments and ‘rediscover’ property investment, possibly one the most important assets we still have for wealth creation. Property investment can provide short-term rental income with long-term ‘relatively safe bet’ capital appreciation. And with interest rates now at historically low levels, UK property investment could prove to still be lucrative despite the uncertain times.
UK property market drivers
There are a range of market drivers making property investment a solid investment choice even in uncertain times. And there are longer-term trends supporting the future performance of the UK property market, leaving many property owners to earn capital appreciation.
Across the UK, there is a housing shortage as demand outweighs supply. Despite the government having dramatically increased the delivery of new homes, there is still significant demand for more homes to be built as the housing shortage ensues.
Even though local authorities throughout England delivered more homes in 2019 than the previous year with 247,000 units being built, a third of local authorities are missing housing targets (Source: Ministry of Housing, Communities and Local Government data analysed by LandTech).
Local authorities would need 32% more homes built every year to meet the government’s pledge of delivering 300,000 new homes per year by the mid-2020s. The lack of properties in the housing market and private rented sector provides opportunities to help meet a need through bringing forward new rental properties.
The population of the UK has grown year-on-year since 1982, according to the Office for National Statistics. The UK population is continuing to grow at a faster rate than new housing is being built. And as the population continues to grow, demand for residential properties is forecast to increase further.
Additionally, the number of people living in a household is decreasing as divorce has risen and fewer families are living intergenerationally, showing there is a further need for more housing than ever before.
Low interest and mortgage rates
Interest and mortgage rates are at record lows with The Bank of England recently reducing the basic interest rate from 0.75% to 0.25% followed quickly be a further reduction to 0.1% to counteract the crisis caused by the coronavirus outbreak. Lower interest rates mean the cost of borrowing is lower, which can help boost your buying power.
Mortgages can help you purchase a higher valued property, and investing when interest rates are lower can give you a higher return on investment. With interest and mortgage rates so low, it can prove to be a more affordable and profitable time to invest in property.
Property investment vs. low interest savings accounts, stocks and shares
With historically low interest rates, banks and building societies have cut rates on savings as well, making it even harder for you to earn much through your accounts. These rates have been low for years and will likely fall further due to the recent base interest rate cuts, providing little opportunity to earn much interest on your savings.
At the other end of the spectrum, stocks and shares are currently relatively volatile ways to invest your money. You need to have a clear understanding and inkling of what to invest in, in addition to how much and when. Although some people have earned large sums from investing in stocks and shares whilst markets are down, many have lost eye-watering amounts too. And the volatility of these types of investments can put a substantial amount of stress on your shoulders.
Compared to stocks and shares, UK property investment typically has lower volatility. When investing in property, there’s the potential to earn rental income and capital growth, providing both short and long-term finances. And as you can borrow money through a mortgage to get started, you don’t necessarily need to have a large amount of capital to get started.
Further proving itself as a solid investment choice, the UK property market has shown its resiliency, especially since the Brexit referendum. And certain parts of the UK property market have been particularly resilient. Fully hands-off investment is also possible with property investment, making it easier for you to earn a steady income without putting much time in once your property is setup.
How to invest in UK property successfully
Buying in the right location is key for any property investment. Scotland, the North of England and the Midlands currently have lower entry prices and higher average rental yields than the majority of the UK.
Putting a focus on areas with trends of strong rental income and tenant demand can prove to be lucrative. Locations where demand isn’t fully being met can lead to especially high yields with less void periods and leave investors more room to generate a steady income than when relying solely on capital appreciation.
Investing in regional cities across the North of England and Midlands is likely to continue to be lucrative as property price growth is projected to be strong and demand continues to increase. And as the number of students have risen across the UK, university cities and towns are also seeing growing demand in the rental sector.
Finding top rental yields
On TotallyMoney’s list of the best buy-to-let areas in the UK, sixteen of the top 25 postcodes in terms of rental yield are in the North West and Scotland. Liverpool led the way with six postcodes on the list as you can achieve a 10% rental yield in parts of the city, compared to the national average of around 3-4%.
Birmingham, Leeds, Manchester, Sheffield and Nottingham were named by SevenCapital as some of the UK’s best property investment locations in 2020 and all boast average rental yields at 4.7% or above. Regional cities are providing opportunities worth looking at to earn a strong monthly return and capital appreciation as property prices and yields are slated for strong long-term growth.
Another factor to look at when investing in property is how you can add value to a property, whether through renovations, extensions, conversions or design improvements. Buying a property that provides the potential to add value can help you earn capital gains when you decide to sell the property.
Additionally, adding value and making improvements and renovations to the property can attract more prospective tenants, which can make renters want to stay put for longer and can reduce the amount of time the property is left empty.
UK property – A sold investment choice even during uncertain times
Property investment boils down to finding the right property in the right location for your investment strategy, and the most successful kind of investment helps you earn a steady monthly income from the rent, and capital appreciation once you sell the property to help you reach both your short and long-term financial goals.
The UK property investment market is considered to be relatively robust and stable and remains a sold investment choice even during uncertain times.