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Best Property Investments in the UK

If you’re thinking about investing and are unsure which markets to consider, you might like to consider the property market. The best property investment UK opportunities can provide good rental yields for UK investors. If you’d like to understand more about investing in property, this Moneyfarm blog will give you a great insight into the highest rental yields UK investors can attain.

Best Property Investments in the UK: Summary Table

🏠Should I rent or buy a property?Ideally, you should buy if you can afford it
💷 What is the Help-to-Buy UK alternative?Lifetime ISA (LISA)
🛌🏽 Can I live in my buy-to-let property?No, you can’t live in your own buy-to-let property
💸Why I shouldn’t own a house?If you have bad credit, and no down payment or job

Is UK property still a good investment?

Now is a good time to invest in property. According to Forbes, between the beginning of 2020, and quarter one of 2022, the average house price has risen by 16.8%. In addition, figures published by ‘the Halifax’ show that over the last 18 months, there has been a 35% increase (a record high) in the number of first-time buyers.

However, with price rises rampant, fuelled by many things, including the Russian invasion of Ukraine, and rising oil and energy prices, is buy-to-let the right approach?

The buy or rent decision

If you are looking for property in which to live in, one of the considerations you need to ponder is whether you intend renting or buying. Ideally, you should buy. Property prices in the UK tend to rise in the long term. They can stagnate for a few months but will usually appreciate in value. So, the longer you wait to buy a property, the higher the house price will be.

The problem for most people is saving enough for the deposit and then affording the mortgage payment. Deciding how to save money for a house is no easy task, especially if you can’t save enough to keep up with the average property price.

According to the ons.gov.UK, the average house prices in the UK increased by 10.2% in the year to March 2021. The average property price in England is £275,00, but in Wales, the rise was slightly higher (11%) with a house price of £185,000. Scotland was also higher than England, with a 10.6% increase resulting in an average property price of £167,000.

The smallest deposit on an average house in England these days is 5%, but 10% is more common. So, you must save a minimum of £13,750, preferably £27,500. That is no small thing. One option is to start up an investment account.

You could open a Lifetime ISA (LISA), designed to help people get on the property ladder. The only problem with LISAs is that you get penalised if you take money out early and don’t use it for a house deposit. You never know what the future holds, so it is a bit limiting. You would be better advised to put your money into a Stock and Share ISA.

The buy to let investment market

Disappointing news about the UK economy and the ongoing alarm about the rising cost of living means that the UK property market is now drawing in its horns. New taxes and regulations restrict those who have gone into buy-to-let investment. At the same time, owner-occupiers are becoming reluctant to undertake high-risk property moves, given that interest rates are starting to rise.

Is buy to set Still a worthwhile proposition?

Buy-to-let investors are still suffering from the changes to tax benefits that were brought in in 2017. Landlords’ profits were reduced by the amount of mortgage costs that could be offset against rental income, and a 3% stamp duty surcharge was also introduced.

There is also the change to the government’s Energy Performance Certificate (EPC) to be considered. From 2025 property owners must get their EPC rating uplifted from the E band to the C band. This is another cost consideration that buy-to-let investors need to be aware of.

On the positive side, landlords are quitting the property market, and it’s leading to increased tenant demand for fewer properties. This has caused a healthy competition for good quality lets and rents, surely a potential increase in rental prices. However, it could mean that the best yield property UK deals are yet to come.

The amount of profit you should make on a UK rental property

Property investors in the UK should be looking to make a minimum of between 5% and 8%. The percentage may increase according to the type of property, the size, and the location.

How to figure out the potential profit of a but to rent property

Ideally, you will want the highest yield property UK investment will allow. It would be best if you did your homework. Here’s what you need to establish:

  • Check out the purchase price of the property.
  • Research the rental potential in the area. Make comparisons to other similar properties in the area.
  • Check out the demand for the type of property
  • Estimate how much your investment will cost you as accurately as possible. Consider things like mortgage payments, maintenance costs, property management fees, property tax, and service charges.

The best areas in which to buy property

While London is the most expensive UK city to buy property, it is not necessarily the best from an owner occupier’s point of view. Going back to the report published by the ons.gov.uk, while the average property price in England rose by 10.2%, in London, the increase was only 3.6%.

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But London will always be one of the best property investment areas in the UK because demand will always outstrip supply, which drives rentals higher.

The best places to buy property in London

According to the Really Moving, the 5 best areas to invest in London are:

  • Battersea
  • Barking and Dagenham
  • Bloomsbury
  • Havering
  • Leyton

The investment areas above that are closest to London city centre are Battersea and Bloomsbury. Battersea is now quite desirable, especially since the old Battersea power station has been totally repurposed and is now home to many new homes, a village hall, restaurants, shops, and an area for small business start-ups.

The best places to invest in UK property for capital growth

If you are looking for capital growth, the best place to buy investment property in the UK is the North East or the North West. Whereas London only showed a 3.6% price increase, the North East showed an average price increase of around 13.9%. The North West experienced about a 12.7% growth. The area that outstripped all others was Yorkshire and the Humber with 14%. The West Midlands was around 10.4%.

Why illiquidity could be your enemy

When it comes down to the worthiness of buy-to-let as an investment, there is one other thing you should bear in mind: liquidity or, to be more accurate, illiquidity.

Liquidity refers to the speed with which an asset – in this case, property – can be quickly bought and sold. Sometimes (not often), a property will sell in no time. But illiquidity refers to the slowness with which assets can be turned back into cash, and all too often, selling properties can take months, especially if there is a long chain or when property markets are declining.

The market for UK property in 2022, in terms of rental growth, looks to be strong, with average rents likely to remain firm or even rise due to demand outpacing supply. Average rental yield, however, after taking maintenance costs into account, probably won’t do as well.

Investing in property vs a private pension

Even the best property investment in the UK may not suit you in later years. Rental properties can be nightmares for landlords in terms of rogue tenants and spiralling maintenance costs.

Investing in a mortgage is something that is down to the individual. Any spare cash you have left over can be used to settle your mortgage quicker, and many people who are risk-averse and worry about financial debt go down this route.

But brick and mortar is always considered a sound investment in the UK option, and if you are not risk-averse, you can let your mortgage stand and invest any spare cash you have in other investment vehicles such as Stocks and Shares ISAs or a personal pension.

The buy to let vs personal pension argument has raged on for years and is likely to continue doing so.

Bear in mind that investments, whether in bricks and mortar or equities, can fall as well as rise, so please, always seek independent financial advice from wealth specialists who are authorised and regulated by the Financial Conduct Authority.

FAQ

Is buy-to-let worth it?

Investing comes with risks. Buy-to-let can be a good option if you are investing for the long term,  It isn’t a quick money-making scheme, but there is a decent income to be made if one goes into it with their eyes open. Recent changes to the buy-to-let market make it less attractive to some investors. However, if done correctly, it remains profitable for landlords. Rental yield may decline, but capital growth is the most important factor with buy-to-lets. 

Is UK property still a good investment?

Rightmove recorded a 9.7% increase in the UK average house prices, and the average UK property price rose to £368,814 in June 2022, so owning a UK property is still a good investment.

Why is buying better than renting?

It’s not clear which option is better. Your financial situation, lifestyle, and personal needs will determine which one is best for you.  You need to consider the benefits and the costs for each option based on your income, expenses, and lifestyle.

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