Is UK Property an Accessible Investment?

Although the UK offers a lot of the same financial opportunities as other countries, the accessibility and reliability of this investment market are what sets it apart from others. The Buy-to-Let property market is a common first stop for investors into the UK, and now increasingly popular amongst both UK residents and overseas investors. 

 

A wealth of mortgage options, property types and competitive rates of return – together, these factors make the UK property market more accessible. Following the release of their Finance Investment Guide, property developer SevenCapital sheds light on the accessibility of the UK investment market:

 

Affordability

 

When viewed against other comparable markets, UK property is much more affordable as an investment asset. While we have seen the average property price rocket in the past 12 months, fuelled by the Stamp Duty holiday, overseas markets continue to position UK property favourably.

 

To be specific, the average price per sq ft. in Hong Kong – a notoriously expensive market – equates to over £23,000, significantly more than Birmingham’s £3,000 per sq. ft. With such stark contrasts, it’s no surprise that the number of overseas landlords in the UK property market is at a five-year high – 184,000. 

 

For domestic UK investors, the property remains a relatively affordable asset thanks to the diversity of its locations. While we have seen the average price of the property increase, making entering the market potentially more challenging than it once was, depending on where you’re looking to buy,  the average rent saw similar growth. Hamptons recorded an 8% rise in rents following the 2020 post-lockdown boom, offering stronger returns and making entry prices less daunting. 

 

As a key metric to consider, rental yields indicate how much you stand to make when measuring your rental income against the price of your property. While the UK average currently stands at 3.53%, the rental yield in every area across the country varies greatly. 

 

With the likes of Bracknell in Berkshire edging towards average yields of 4%, coupled with below-average purchase prices for the area, the property becomes more accessible to prospective investors. As a result, the introduction of Buy-to-Let property within a portfolio is becoming more widespread amongst investors at all stages.

 

Finance Options

 

Establishing your finance options should form part of your early research when exploring property investment, which you’ll come to realise, comes with a variety of different considerations. What could be overwhelming for some, this part of the journey will likely be based on several other factors: 

 

Your current financial position, investment goals and timeline will be some of the key aspects that contribute to this decision, possibly leading you to one of the following options: 

 

  • Repayment Mortgage (Capital and Interest)

As the name indicates, a repayment mortgage involves monthly payments towards both your loan and interest. While this often makes repayment mortgages more expensive monthly than alternative avenues, when the term ends, you’ll own the property outright. 

With these bigger monthly payments, this mortgage option is typically more common amongst those with a higher income or more liquid cash position. This is large because the rent from your investment property may not leave you with much profit or, in some cases, may not be enough to cover both your loan and the interest in the first place.

 

However, for those looking for a potentially lucrative, long-term investment asset, repayment mortgages make achieving this more accessible. While the returns are initially fairly low due to the higher monthly payments, when the mortgage term ends, you’ll own the property outright and won’t have to consider any outstanding loans.

 

With this in mind, Repayment Mortgages commonly offer the best Return on Capital Employed (ROCE) because you’re building equity while you’re repaying your loan and interest. 

 

Remember, investors also have additional fees to consider when choosing Buy-to-Let property, such as maintenance and management costs. Those opting for a repayment mortgage will have to ensure these can be covered in alternative ways. 

 

  • Interest-Only Mortgage

An Interest-Only mortgage is one of the most common routes to investing in property, with this finance option being more accessible to a wider pool of prospective investors. While this still includes monthly payments, you’ll only be paying off the interest every month, as opposed to your loan plus interest.

 

In offering more affordable monthly payments, the rental income from the Buy-to-Let property usually covers the monthly payments with some leftover. As a result, Interest Only mortgages have made property investment more accessible for those who don’t necessarily have a financial ‘safety pot’ to fall back on.

 

However, one thing that needs to be considered with this mortgage type is that when the finance term ends, your loan will need paying, whether this means selling the property or using alternative means.

 

  • Cash Investment

Although not as common as repayment and interest-only mortgages, cash investment is still a route for prospective investors to go down. As this finance option is essentially contributing a lump sum all at once, this makes an immediate passive income more accessible. 

 

The absence of a mortgage also makes cash investment more hassle-free than the previous financing options, with fewer elements to consider and to keep track of. 

 

Regardless of your financial position, these different financing options make accessing Buy-to-Let property more straightforward, for both UK residents and overseas investors. But as everyone’s financial position and goals are different, consulting a mortgage advisor is crucial.

 

Flexibility

 

Unlike other investments, the flexibility that property can offer also helps make it a more accessible asset. There are a variety of different property types to choose from, from studio apartments to houses, all of which come with their benefits and drawbacks.

 

The likes of studio and one-bed apartments are typically more affordable for investors when compared to bigger apartments and houses. Alongside providing increased affordability, these properties remain popular amongst single occupants – especially young professionals and graduates – which means they can still offer significant returns. This consistent demand for studio and one-bed apartments means that investors can use more affordable property to begin their portfolio, without compromising on returns.

 

However, the option to invest in bigger apartments and houses also highlights the flexibility of this asset. While two-bed apartments are typically more common amongst couples and those searching for more space in city centres, houses are usually a go-to for families that are renting. With each property type proving popular amongst a variety of tenants, investors can have more autonomy over their portfolio with increased opportunities to diversify their property portfolio. 

 

There is also a mix and match element of property investment. The location of your property can be key to its success, with city centres often providing more competitive rental yields than suburban areas. While your portfolio can include different properties across different locations, which can also reduce risk, opting for an emerging location can make this investment asset more accessible. 

 

Emerging locations are often those that are undergoing regeneration schemes, and are forecasting considerable growth in the years to come. The South-East is a prime example of this, with the region forecasting up to 17.5% increases in property prices by 2025. But while the region remains under construction, the properties remain at a more affordable price in comparison to other areas.

 

So, is the UK Property Market an Accessible Investment?

 

There are many elements to consider with property investment, from finance options to property types and locations. But it is these considerations that make the UK property market more accessible for investors. The flexibility that comes with interest-only mortgages means that those without a financial ‘safety net’ can still begin building a property portfolio, especially with the additional affordability of different property types and emerging locations

Blog Post by SevenCapital

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