Ah, the great British housing market! For years, it has proven to be a cornerstone of our economy, but like all things, it's ever-changing. For landlords, this constant flux can often lead to moments of indecision. But fear not! If you've been pondering the idea of investing in buy-to-let properties, now might just be the perfect window of opportunity.
“If only I had the money, I would buy a place to flip.”
How often have you and your friends sat around a table, perhaps enjoying a beer or glass of wine at the end of the evening, when talk turns to the possibility of buying a property to rent out or flip?
Affirmations follow, “Yeah, me too” and “If only I had the money, I would buy a place to flip.” Well, I’m here to tell you it’s very doable and no, you don’t need to be super rich to do it. In fact, property is a good investment right now if you can be in it for the long term, say, five to ten years.
Why bricks and mortar?
In an increasingly digital world, there's something deeply satisfying about investing in bricks and mortar. Not only does it provide passive income, but it also serves as a tangible asset that can be passed down generations. The reason I got into the property market was simple, I like to be able to see my investments in a concrete form. You can visit them in real time, do repairs, decorate, if that’s what you’re into. Or you can supervise while your builder/decorator does the work for you.
Plus, everyone needs to live somewhere, house, flat, broom cupboard. Currently, demand is outweighing supply. According to the 2021 census the number of families in rented accommodation has doubled in the last 20-years in England and Wales, to over five-million households, whereas home ownership is falling. This is where private landlords come into their own.
Now, I am not a financial advisor, and no, this is not financial advice of any kind, so always do your own research. What I am though, is a property investor with a profitable portfolio of private rental homes and commercial business premises. Property can be one of the best options for long-term investment, if you can afford to stand your ground for the long-term, say 10 years, then now could be the best time for adding properties to your portfolio.
Why are there so many properties for sale?
Here are my thoughts on that. The unsettled economy over the past couple of years has affected everyone, but it has also meant a fall in the investment potential of the buy-to-let (BTL) market for landlords with only a couple of houses. There are several reasons for this; BTL mortgage costs have risen sharply, according to Moneyfacts figures, the average interest rates in November 2022 peaked at 6.76%, a big increase when you remember they were around 4.3 per cent in July last year. As of August, ’23, rates are averaging 6.2 per cent for a fixed term.
Other issues affecting sales of BTL are affordability following government legislation on EPC ratings, having to spend anything from one thousand to several thousand pounds on implementing energy efficiency remedial works will sap anyone’s enthusiasm for the profession. With so many houses available as prices reduce for a quicker sale – they went down 4.9 per cent in August - mean it’s a buyer’s market right now.
Why buy properties now?
Despite this doom and gloom, demand for rental properties in the UK is holding strong, remember that 5 million? More folks than ever are opting for the flexibility that renting offers. Millennials are all about an on-the-go lifestyle, and that's music to a landlord's ears, growing the demand for rental properties.
As urbanisation continues to drive population growth in key cities, the need for rental housing is projected to rise further. This consistent demand can provide landlords with a stable income stream and minimises the risk of prolonged vacancies. And while many private landlords with smaller portfolios are finding it hard to stay in the game, historically, the UK housing market has exhibited steady growth over the long term.
True, short-term fluctuations do occur – we are in a dip right now – but property values have generally risen over the years. So, for those of you who can afford to take a punt on the recovery of the falling market, and by setting your sights on the right rental areas, your ROI can still get a boost.
Change is as good as a rest.
This is where the plot thickens. Diversification is the name of the game in property investment, although not everyone would agree with me. Let me explain. If you're a landlord with properties in only one area, or one type of property, branching out could be the way to go. Whether it's a switch from city flats to suburban homes or vice-versa, broadening your property horizons can cushion against localised market downturns.
London has traditionally been the focal point for much property investment, however, northern cities like Manchester, Liverpool, and Leeds are showing impressive rental yields right now. The government's investment in infrastructure, especially in the North (think HS2 and the Northern Powerhouse initiatives), is poised to give a significant boost to local economies. Areas previously overlooked are becoming property hotspots. Investing now means you could reap the rewards of these improvements in the coming years, proving lucrative as they continue to develop and grow.
So, if your aim is to rev up that return on investment (ROI), consider aiming for localities with a lively rental market. Even if house price growth decides to take a siesta this year, you could still amass quite the treasure by catering to the rental demand in a new area. It's akin to stumbling upon a hidden treasure chest—patience and the right map will lead you to it.
Don’t think of a pink elephant.
Ha ha, gotcha. Now, let's address the elephant in the room—remember what I said about those bothersome interest rates? Whilst the market's slow pulse might urge you into a buying frenzy, remember that those monthly repayments are like a bill that keeps on taking. With interest rates playing their own games, your repayments might just serve up an unwanted surprise. Ensure your financial footing is steady before you engage with those mortgages.
Ladies and gentlemen, time please.
So, as you sit, drinking your drinks, try asking yourselves, is the present juncture ideal for purchasing in the UK? I believe it is, but much like anticipating the Great British weather— it’s somewhat unpredictable. Let me sum up for you. Whilst lowered property prices and a buoyant rental market might have you tripping the light fantastic, remember that high interest rates and sluggish capital appreciation may leave you with a bit of a headache and wondering why you bothered if you’re not careful.
Therefore, before you don your property seeker's cap, pause for a moment and survey the terrain. Conduct your research, talk to the experts, and make sure your financial shoes are tied tight before contemplating your long-term aspirations. The UK housing market can be a great adventure with fortune favouring the brave. But akin to any treasure hunt, timing and strategy hold the key. Happy hunting, intrepid property explorers!
Until next time, keep your investment compass steady and your dreams of property prosperity alive!
The Anonymous Investor.
*This article is intended as a guide. Always speak to a mortgage professional or property expert if you’re not sure of anything.
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