Investing is a choice many people make at some stage in their life, in the hope of bringing wealth and financial security to their lives. Whilst there are many investment alternatives such as stocks, bonds and cash, property investment is usually seen as one of the safest and most profitable sectors.
The UK residential property is the largest asset class in the country, and according to the Office for National Statistics (ONS), it was estimated to be worth over £5 trillion in 2013, and has seen steady returns that have averaged at 14% since the 1970s. Property is a tangible asset class over which you can have full control over from the outset. As an investor, you are also able to choose your property by its type, size, specification and location.
+ Long term investment and capital growth
+ Steady rental income
+ You have full control over your investment
Rental demand has never been higher in the UK. Extremely large deposits are required to get on to the property ladder, resulting in an ever-increasing number of renters. The Index of Private Housing Rental Prices (IPHRP) as published by ONS in September 2014, shows a clear upward trajectory in the price of renting residential property from private landlords.
In 2014, Despite the Government measures to boost home ownership (such as the Help To Buy scheme) the private rented sector, as an UK average, resulted in higher total returns in the year to the second quarter of 2014, according to Knight Frank.
|City||Av. Rental Growth||Av. Capital Growth||Av. Gross Yield||Av. Discount|
|London Zone 1||1.7%||7.6%||4.3%||7%|
|London Zones 2 & 3||2.0%||12.9%||5.0%||8%|
|London Zones 3 & 6||3.6%||13.5%||6.6%||10%|
Before purchasing a property and getting on to the property ladder, it is vital for you to make an informed decision. You will need to have a clear understanding of your motivation for investing and your current financial situation.
- Goal: what would you like to achieve? You will need to decide whether you are looking for something that will provide you with a long-term income (generator) or a property that you will purchase for capital growth to potentially lead to an early retirement (accelerator).
- Strategy: Once you have set your goals, you will need to carefully select a strategy to match these. Just because something has worked for someone else, doesn't mean it will be right for you.
The location of a buy-to-let property is extremely important, as it is directly linked with the process of finding a tenant. Many landlords like the idea of owning close to home, although this might not always result in the most profitable option.
London property is currently dominating the news headlines, and although house prices are at an all time in the capital, that doesn't automatically mean that you will get the best return for you money there.
Average rents are higher in London, however, because of the higher purchase price, landlords are faced with higher mortgage costs and therefore the yield is lower than the average throughout the rest of the UK.
Most investors will purchase their property with a buy-to-let mortgage. Like a normal residential mortgage, investors are required to repay the loan with interest over an arranged period of time.
A buy-to-let mortgage not only takes into consideration your salary and outgoings, but also calculates the achievable rental income, which is what your property is expected to generate. Buy-to-let mortgages come in different forms, including fixed or tracker rates.
Buy-to-let accounted for 11.5% of total gross mortgage lending in 2012, compared to 9.8% in 2011, reaching £16.4 billion according to Paragon Mortgages. Like all sections of the UK mortgage market, buy-to-let was impacted by the credit crunch. 2013 represented a major step in the recovery of buy-to-let lending, with a total of £20.7 billion.
Once you become a landlord, it is up to you how involved you want to be in the management of your assets.
Most landlords choose to use Management Company to deal with all the time-consuming tasks involved in the process. The agent usually sorts all the details that will make your investment smoother: marketing the property, finding tenants, sorting tenancy agreements and collecting rent.
Letting agents traditionally charge in either of two ways, which both of which relate to the amount of rent payable. The landlord is either charged a fee relating to a multiple of the weekly rent, plus VAT or as a percentage of the rent due for the tenancy contracts period. Typically this would be 10% + VAT.
If you are willing and ready to take on a more hands-on approach with your properties, then you can decide to manage the property yourself. You will need to consider that this could be time-consuming and you could face a higher risk of void periods, since you won't have the resources a letting agent has in the process of finding a tenant. On the other hand, micro-manage your properties will automatically increase your yield as you won't have to pay a fee to a letting agent and the full amount of the rental income will come straight to you.
Risk Warning and Disclaimer:
The price of property can go down as well as up. Historic performance should not be taken as a guarantee of future performance. Geared property investment with mortgages can increase risk of losing money as well as increasing the possible gains. Mortgage products referred to in the website can be withdrawn by the lender or have rates or other terms changed without notice and reference to any products does not imply they are certain to be available in the future. Mortgages referred to may also have certain applicant restrictions and are for indicative purposes only although reasonable endeavours have been used to ensure that they are available at the time of publication and are applicable to a significant number of our purchasers. This site is for information purposes only and nothing on this site should be taken as definitive investment advice for your particular situation without you seeking additional guidance directly from ourselves or from other finance and property professionals. Property particulars on this site do not form part of an offer or contract. The developer and Assetz Property Ltd, whilst endeavouring to ensure complete accuracy in these property particulars, cannot accept liability for any errors. Valuations of property or indicated rents achievable are either estimated or derived from valuations and/or comparables and can change and should not be relied upon without your own additional valuation and research, but we have carried out reasonable endeavours to achieve accurate indications for these figures. All descriptions, dimensions, areas, reference to condition and, if necessary, permissions for use and occupation and their details, are given in good faith as provided by the developer and are believed to be correct. However, these are subject to change, especially, but not wholly, relating to any property that is off-plan or not yet complete. Any intending purchaser should not rely on them as statements or representations of fact but must satisfy themselves by inspection or otherwise as to their accuracy. The onus is on each individual investor to undertake their own due diligence, enquiries and inspections. Where shown, net yields are calculated as rental income less expected service charges less expected ground rent as a percentage of the property price. No void periods, optional letting agent costs, repairs or other costs are deducted. Our standard Terms and Conditions of Sale will apply. E. & O. E.