If you’re considering investing in buy-to-let property, it’s wise to work out how much you’ll need to charge in rent to make your financial commitment worthwhile. With the availability of numerous property websites, finding out exactly how much rent is charged in neighbouring like-for-like properties is fairly easy. It stands to reason that if you have to command a significantly higher rent to make the investment work, chances are that the property you’ve identified isn’t the right one for you.
So what is the health of the UK property market right now? What are the hotspots, trends and challenges? And is there such a thing as a “typical portfolio”? Our Chief Executive, Joe Billingham spoke to Prosperity Wealth’s Group Sales Ambassador David Yelloly, to find out more.
Confidence in the UK property market remains high
Despite the uncertainties caused by the global pandemic, history has proved that the situation wasn’t nearly as dire or gloomy as we might have expected it to be. Why is that? One of the reasons has been that people have more money than ever before to invest.
Globally, we have been consigned to our homes with little to no travel costs, no foreign holidays and little in the way of social and cultural activities that may have traditionally incurred expense. People not only have available capital, they’re also enthusiastic about investing it. And they’re particularly enthused about the prospect of investing it in the UK property market.
David explains: “There is a real enthusiasm for bricks and mortar. We have a benign and safe fiscal and political landscape in the UK, which has led to a strong market.
“We’re seeing political uncertainty globally and the pandemic continues to impact world confidence, with an unpredictability to the financial markets. So where do I put my money that is safe and has the potential to provide me with income and capital growth? The UK property market – and especially the residential property market – is probably the safest place to be right now.”
UK government strategy has undoubtedly provided a huge amount of comfort for those investing in the property market. And, despite local and national lockdowns, the government’s continued backing for the construction industry – which was allowed to continue working as the retail and hospitality sectors closed down – led to a stimulus in other parts of the market.
Are we standing on a stamp duty cliff edge?
They weren’t the only government policies to have benefitted the UK property market in the last 12 months. Finance was identified as being critical to the recovery of the post-Covid UK economy, with the government providing a stimulus in the market to incentivise lenders to lend more money. Stamp duty incentives also proved the catalyst for an uplift in residential property investment, with soaring demand leading to an extension to the initial scheme announced by Chancellor, Rishi Sunak.
The incentives can’t last forever. So, what impact will it have on the property market when they come to an end?
David thinks the effect will be “pretty subdued”. “If we look at the investment market, the investor hasn’t really had a significant advantage in terms of the stamp duty incentives applied over the last twelve months,” he says. “There will inevitably be an impact on the owner occupier market when the stamp duty incentive comes to an end but people still see, more than ever I think, a fundamental strength in investing in UK property. There are clear short and medium term benefits, both in terms of capital growth and income.”
Looking East and West: the UK property hotspots
The property market remains robust but the devil is in the detail. After a decade or more of heating, the South East market has delivered a huge appreciation in property prices in London and Essex, Kent and Surrey. It couldn’t last forever. The result has been price reductions in all sorts of property and David doesn’t see that changing any time soon. So as we move further out of London, it is the areas that were perhaps less popular in years gone by that continue to do well, and in some cases, are booming.
Where should investors be looking? David thinks that value lies in the UK’s Midlands-based cities, including the likes of Birmingham, Nottingham and Derby. “The property market in the East and West Midlands is very strong,” he says. “I look for value. Wherever there is good value, excellent public transport, big centres of employment, we’re seeing property values robustly rising and rents rising too.”
Local UK elections have just taken place – peacefully – and the political and fiscal environment remains benign. It’s a situation in stark contrast to other countries, most notably in parts of the Far East. “There is great uncertainty in other countries. As a result we’ve had a large upsurge in enquiries from Hong Kong, where investors see the UK as a safe haven, for living and investing. This is undoubtedly having a positive effect on areas deemed to be attractive, such as Birmingham,” adds David.
Is there such a thing as a typical property portfolio?
It’s a difficult question to answer. Prosperity Wealth particularly appeals to first time investors, who are guided through the best way to be exposed to property as an investment medium. As David explains, it’s a process that has provided a solid foundation to launch the property portfolios of a great many investors.
“Typically we will introduce investors to lower priced, high yielding properties to get them used to it and gain a foothold in the market. We find that they want to invest again and we help them to progress to something complementary to their initial investment,” he says.
“We provide investors with a balance to their portfolio, perhaps that’s a high yielding property in a northern city but also something complementary which may be a higher value, lower yielding but capital appreciating property, in Birmingham.
“We are also seeing a rise in the appeal of countryside living for many families, perhaps driven by the pandemic, and that’s a trend likely to continue in the next 3-5 years. It’s why diversification is so important in what we try to do for our investors, combining different types of tenant, more conventional mixed tenancy and housing projects for family tenants in Norfolk for example.”
Why the UK property market is the best place to invest
Whilst the UK property market has been extraordinarily resilient – before and during Brexit negotiations and the pandemic – there continues to be challenges for investors to consider. Many UK cities will be stimulated further by the amount of money being ploughed into them via investment funds, which will inevitably diminish the amount of stock available. While there are lots of cranes and construction activity in urban centres, the amount of product being delivered for typical buy-to-let investors is still quite low.
And property is of course, an area of taxed income. With lots of places available where people can invest their wealth, is it possible that the attraction of UK property may start to wane? Not in David’s expert view. “There are other opportunities to make money in the short-term, such as equities or bonds which have a place in a person’s portfolio,” he adds.
“Any property investment must be taken with a long-term perspective, but it’s relative attraction against other areas of investment is there for all to see. Property is a good solution for anyone’s free capital, as it engineers the risk away from an investment portfolio. Taxation of our marketplace has largely been driven by the fact that investors have benefitted from an uplift in prices from very strong and resilient yields. The UK government felt it was a natural place to tax, which just underlines the strength of the market.”
So do I leave my money in cash? Perhaps I invest in equities or overseas equities? Or do I look to invest in property? We’ll leave the last word to David. “We frequently talk to our investors about the benefits of borrowing in the UK, in a low interest rates environment. They see the advantages of gearing and how it magnifies the capital returns if you buy in the right place and at the right time. For the foreseeable future – at least for the next five years – UK property has to be the best place to be.”
To find out more about our current investment opportunities to discuss any of the issues raised in this article, please contact Prosperity Wealth on +44 (0) 845 676 9799 or email firstname.lastname@example.org