Buying property is always seen as a good way to invest your money, but as with any type of investment, there are good and bad times to do this. With the combination of Brexit and COVID-19 we have been through a massive period of uncertainty that has left many people wondering whether now is really the best time to make a property investment or not. Can it really make you money at the moment? Is the property bubble preparing to burst?
The buy-to-let market has been buoyed by increased demand, but with no-one seeming sure what the future holds for the financial markets, some investors are unsure about whether they should be making a purchase at the moment. Many investors are keen to put their money into property either to save for their retirement or to supplement their monthly income and this can be a terrific way to accumulate wealth and strong income streams.
Here, Mark Burns, Director of Pure Investor looks into what the property market, and more importantly the buy-to-let market can expect, helping you to decide whether or not now is the time to buy and what approach to take when looking to make the move into property investment.
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Rental yields are one of the most important factors involved in being a buy-to-let landlord. At the very least, you need to be sure that your rental yields will at the very least cover your monthly costs of mortgage payments and letting agents, and hopefully can supplement your income as well.
Monthly rental yields vary greatly in the UK, with the lowest being in the region of £396 in the North East, and London boasting as much as £1755. This is due to a year-on-year increase of 1.6% across the country, with some spots even seeing rises of as much as 2%.
It is important to remember that these numbers do not tell the whole story, as costs tend to be higher in the capital, meaning that profits may not be as much as you might think, and other areas of the country can leave you with more cash in your pocket.
The rental yield that you can expect is driven largely by the demand for property as a whole. At the moment, rental amounts have risen modestly, but house prices themselves are growing greatly, making it harder for many to buy their own properties. As many as 17% of all UK households are now rented homes. This means that there is a lot of demand for somewhere to live, with many opting to rent instead of buy.
By the end of 2020, it is estimated that the private rental sector was worth a whopping £1.4 trillion, and a lack of supply plays a large part in this. With more tenants competing for bigger homes, it is likely that rental prices could be in for a substantial rise over the next year or so.
For most landlords, a mortgage is necessary to make a property investment, and understanding what is likely to happen in this market is crucial to understanding whether you are investing at the right time. Back in 2020, we saw a lot of lenders withdraw their buy-to-let mortgages, but this has now been reversed, and property investors are able to take advantage of the current low rates.
Mortgage rates have been falling for some time back to the levels we were seeing before the COVID-19 pandemic took hold. Those who have a 75% loan-to-value will enjoy the lowest rates, but it is important to take into account some of the hefty fees that are still attached to these sorts of products. There are options to fix for two years and five years at relatively reasonable rates depending on how much security and stability you are looking for.
Investing in property can be a profitable business, but it is not something that offers quick returns. If you are going to buy a property and act as a landlord, you should be prepared to take a long-term approach to your investment in order to maximise what you can get out of it.
Since 2012, rental income in the UK has gone up each year, with Northern Ireland and England performing the best. Given that the economic climate has been somewhat challenging during that period, this should be encouraging for those looking to make the move now.
Whilst there have been dips during that time, they have been relatively short and seen good recoveries, which is why a long-term approach tends to be more beneficial.
When investing in property, you will also need to take into account the costs which are involved. Not only do you need to think about mortgages and letting agents and the fees involved with those, but also solicitors, taxes and estate agents. Recently, the stamp duty holiday has encouraged a lot of movement in the market as investors have taken advantage of the reduced cost of moving.
If you already have a property portfolio, you should factor in potential capital gains tax if you are selling a property in order to make another purchase. You should also be careful not to overload yourself, and grow your portfolio steadily, as an unexpected change in the market or interest rates could bring your empire crashing to the ground.
Choosing the right time to invest will always depend on your personal circumstances, and no one else can advise you on this. However, where the overall market is concerned, there are some great opportunities to be had at the moment as general, longer-term returns have always tended to head in an upwards direction.
There are likely to be changes and bumps in the road as you go along but having adequate preparation to see you through these times can lead you to a profitable and enjoyable time. It is always important to do your research and not rush into an investment, but once you have done your sums, there are some great chances to grab.
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Millie is a perfectionist with a passion for property and writing articles. You’ll find her researching the latest housing trends and the newest up and coming areas worth investing in. Read more about Millie here.