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WHY INVEST IN PROPERTY

WHY INVEST IN PROPERTY

Topics:

  •          Reasons to invest in property
  •          Three reasons property might not be for you    
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Why Should You Consider Property Investment in the UK?

Now that you know what property investment is, you may be unsure why you should bother with it in the first place.

After all, with the stock market and cryptocurrency the talk of the town, you may feel like property investment is old-fashioned. And sure, while real estate is more old-fashioned than the (rather confusing) world of Bitcoin, it’s an old favourite for a reason.

Property investment can sustain a consistent and reliable income with minimal risk or pressure for several years.

With this in mind, let’s look at five compelling reasons you should invest in UK property.

Why Should You Consider Property Investment in the UK?

One of the big reasons behind the appeal of investing in UK real estate is capital growth. If you’re planning for retirement, being able to collect a huge cash injection upon the sale of your property is a tasty prospect.

And good news for investors as the UK property market is currently booming. As of March 2022, the average house price in the UK was £278,436, a whopping £63k more than five years ago.

In fact, in the last 12 months leading to March, prices in the UK soared by 9.8%. Prices increased by a staggering £45k since the Covid-19 lockdown in March 2020.

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Contextually, this growth is an incredible achievement. After a drop between March 2020 and April 2020, prices skyrocketed and have shown little signs of slowing down.

Most investment classes have struggled since the UK’s first lockdown, with the likes of the stock market seeing the third-worst day in its history after the Dow Jones dropped 3000 points.

However, property prices have continued to rise, performing strongly in times of uncertainty due to the sky-high demand seen in the UK. For this reason, property is one of the safest asset classes.

Looking for a property investment strategy? Read our complete guide.

Are you investing in property for income? If so, you’ll be excited to hear that rental values are also rising across the United Kingdom.

As of April 2022, the HomeLet Rental Index recorded an average national rent of £1,091 per month – the highest on record.

Data: HomeLet Rental Index, April 2022

These rates can heavily differ depending on which area you invest in. For example, the average home in London commands an average rent of over £4,000. In contrast, a more affordable location like Liverpool sees average rents of under £1k.

Regardless, increasing rental prices are good news for investors, as they stand to earn even higher passive income. And these growth levels don’t look like they’re slowing down anytime soon.

Predictions from JLL anticipate that UK rent will increase by 2.5% annually over the next five years. Meanwhile, Savills anticipate an equally mammoth prediction of 19.9% by 2026.

Whatever prediction you believe, rental prices will continue to rise in the coming months and years.

A major component behind rising market data has been the level of regeneration seen in the UK. Many UK cities, particularly in the North of England, economically struggled in the 1980s.

But regeneration has helped transform their tired manufacturing economies into more modern, tech-centric industries. Fast-forward to the modern-day, and regeneration continues to play a huge role in house and rent growth.

Major projects across the UK are seeing billions spent improving housing and infrastructure. Places like Liverpool, Birmingham, Manchester, and Leeds are each seeing multi-billion pound projects on their streets.

From HS2 in Birmingham to the South Bank project in Leeds, the future of the UK looks bright. But why should you care about regeneration in an area?

The increase in an area’s quality of life means that people want to live there. More people means a higher demand for property, which leads to significant growth.

Therefore, if you want to maximise your chances of enjoying growth, it’s good to target locations with ongoing regeneration projects.

UK demand in recent years has reached quite startling levels, much to the surprise of many industry experts. As the UK entered its first lockdown in March 2020, many commentators and analysts anticipated a considerable market drop with little to no demand for property.

How wrong they were. 2020 saw one of the biggest spikes in property demand ever recorded, and we’re still in the same buying frenzy in 2022. Our friends at Rightmove found that the Spring of 2022 saw the biggest ever mismatch between supply and demand, with twice as many buyers and sellers.

As of April 2022, it took just 31 days to secure a buyer in the UK – two weeks faster than April 2021. While the speed at which properties are sold could cause a headache for investors trying to buy, it’ll pay dividends once you get on the market.

Although property transactions (and price growth) will soon slow down, the damage is already done. House prices are now at enormous levels, and it doesn’t look like that’s going away anytime soon.

Experts like JLL anticipate that prices will rise by 20% between 2022 and 2026, with a 4.5% growth in 2022. These growth predictions look well on track, with a 1% rise in prices in the first three months alone.

Want to learn more about rental yields? Check out the complete guide.

If you’re looking to invest for the future, you can feel safe knowing that the future is renting.

The number of people classed as Generation Rent continues to rise in the UK. Generally used to describe those aged 18 to 34, Generation Rent represents a generation of younger people forced to rent as they can’t afford the rising costs of new homes.

While money is certainly a factor in this, studies have found that some renters do so as a lifestyle choice. In June 2020, a survey from Savills found that half of the respondents would happily choose to rent if they were unable to find a home within six months.

Renting isn’t just the future for younger people, either. A report from The Guardian found that 400,000 over-60s were living in private rented accommodation, which was a 60% increase over 2007.

Further research mentioned in the same report predicted that roughly one-third of over 60s will be privately renting by 2040.

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Why Shouldn’t You Invest in Property?

Investing in property can be a great choice. But the reality is it won’t be for everyone. Whether you’re strapped for cash or want a quick buck, the property world may not be for you.

And that’s okay. Investing is a big decision. You need to find an asset that ticks all your boxes. But if you’re still undecided and want a bit more information, here are three reasons investing in property might not be right for you.

  1.     I Can’t Afford the Costs

This is an obvious one. The biggest stumbling block for potential investors is the massive entry price of property.

We’ve just shown you that UK house prices are soaring at a frightening average of £280k. To get a mortgage based on this average, you’d need a 25% deposit of around £70k. And that’s without including the extra costs you’ll need to cover, such as maintenance fees.

But while buying (and owning) property can be expensive, you shouldn’t let this put you off. The UK property market is diverse, and you can find prices far, far below this. Take Liverpool, for instance, which sees average prices for flats at £135,111. And if that’s out of your budget, we’ve witnessed off-plan apartments available for as little as £50k.

There are even options for people with just £1,000. Real Estate Investment Trusts and Property Crowdfunding platforms are two excellent ways to indirectly invest in property (more on this in chapter 5).

  1.     I Don’t Want to Wait for Prices to Grow

While the issue of affordability can be negotiated, we admit that property may not be the choice for you if you don’t want to wait.

Although property does deliver regular rental income to supplement your wallets, the true benefit of UK home investments is the capital growth on offer. Property is a long-term strategy, and while it may be one of the best long-term strategies out there, you still need the patience to let it grow.

However, it’s important to say that many investments are like this. The likes of stocks, cryptocurrency, and even savings accounts all require varying levels of patience before you can get the full benefits. So do keep this in mind when assessing what you want from an investment.

  1.     I Don’t Want to Lock Away My Cash

Investing large amounts of cash in an asset can be scary. And this is especially true with property, an illiquid asset.

Unlike stocks and shares, which can be sold on a whim if you want to get your cashback, homes are far harder to sell.

If your circumstances change and you’re in dire need of money, there’s no simple way to sell a home for instant cash. Although it currently takes around 31 days to sell your home, that’s still a lot longer than it would take to sell all your shares in a company.

Unfortunately, there’s no way to avoid this. Every investment has a risk, and this is simply one of the risks with property investment that you may need to accept.

Thinking of investing in property? Learn if now is the time to invest.

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