Will I ever be able to afford a property in London? Should I invest in property or wait? These questions seem related but, in reality, come from two very different worlds.
We see ‘average’ property prices in the news as they go up (or down). London is a different creature altogether!
Property in the UK outside of London continues to do well – especially in cities like Manchester, Liverpool, Newcastle, Leeds, and Glasgow. Rental yields offer great returns and property price growth is fast – but affordable.
London, however, is a fragile creature – especially in the face of the uncertain political climate. We daren’t mention the ‘Brexit’ word but, unfortunately, it is having an impact on the London property market.
For UK buyers, however, that could be a good thing.
Here’s how to decide whether now is a good time to invest in property – and your options for doing so.
- Will property prices go up or down?
- Should I invest in property now or wait?
- How can I get a mortgage?
- Alternative ways to invest in property
First, let’s look at why prices continue to rise in areas outside of London.
Huge regeneration projects and improved transport links make major cities outside of London attractive for families, professionals, and investors alike. Properties in nearby towns and villages, for example, rocket in price when a new transport link opens.
People who can’t afford London prices – but want the city lifestyle – head to other large cities in the UK. Manchester, Newcastle, Glasgow, and Liverpool have a booming market. Now is a good time to invest: prices are set to continue to rise.
Inside London, however, it’s a different market.
Why the London property bubble is different
Overseas investors snapped up lots of luxury apartments and new builds. This pushed up market prices as residents trying to get on the property ladder had to compete for houses.
The same investors also raised rents: they didn’t buy property to move to the UK, but to rent it out.
However, with the uncertainty of Brexit still looming, many of these investors have pulled out of the market. There is more choice for UK buyers. The previously limited supply and increasing demand may ease off over the next year.
This could mean a stagnant market. For investors, that’s not always great. For home buyers, it’s good news. If you can get a mortgage, that is. (More on that later).
Does political uncertainty mean good or bad news for investors?
The one thing to remember is that, when the market slows down, it could still be good news for those selling property. Brexit means many sellers took their properties off the market until they work out what’s going to happen. Yet, there’s still a demand from buyers.
Those with property to sell now can demand a higher asking price. Which means, as an investor, you might not get the best deal.
Waiting it out, to see what happens politically and economically, could mean the market becomes flooded with properties for sale. As an investor, this is a good thing: sellers will be in a weaker position to negotiate hard to demand high prices. Buyers will have their choice of the market.
The cycle of buyer/seller favourable markets is the key to rising or stagnant house prices. As an investor, you ideally want to buy as low as possible and sell for maximum profit. However, as property investment inevitably builds wealth best if you become a landlord for a while first, you can take your time to choose when you sell on your property.
With all the uncertainty outlined above, it may be tempting to wait and see what happens.
However, prices ARE set to rise – as demand for houses continues to increase. This is, in particular, in areas outside of London.
The riskier property investment strategy, right now, is buying a property to ‘flip’ it. That’s when you buy a cheap property to renovate it and sell for a profit. You’re not guaranteed an end price – and could lose money if renovations cost a lot.
However, you could always buy such a property and become a landlord for a while to pay off your mortgage and recoup your investments. This strategy makes property pay for itself even in a tough market – if you choose a good property, that is. Check out our article on buying property for profit to find out more about becoming a landlord.
Of course, if you’re looking for a property to buy to live in, now is as good a time as any to buy. Prices, inevitably, rise over time. There may be bumps in the road, but if you’re looking for a home, it’s worth starting your search now.
Can you afford to invest in property?
You need to find out if you can afford to buy a property, first. Consider:
- If you can afford to have an empty rental property that costs to run
- If you can meet mortgage payments with the predicted rent
- If you’d get a mortgage
- Whether you’ve got enough for a deposit
- If you have money for conveyancing and purchase fees
- Whether you can afford to tie your capital up for a while
Even when someone is paying your mortgage with their rental payments, you need to turn a profit, too. That’s after maintenance, fees, and paying for empty weeks or months.
Try our mortgage calculator to see if you can easily pay the amount you would need to pay each month:
Buy-to-let mortgages require a lot more capital: you need to already own property and put down around 25% deposit. That’s compared to a 5% deposit on some first-time buyer schemes!
Despite the current economic uncertainty, mortgage lenders do still lend fairly easily. They’re even finding ways for young people to get on the ladder quickly, with the introduction of student mortgages!
To get a mortgage, you need to:
- Have a deposit saved (at least 5% for a first-time buy, ideally 10% or more)
- Have a regular income
- Prove your income and expenses
- Be over the age of 18
- Meet lender-specific eligibility requirements.
You also need to choose your property carefully: lenders often won’t give you a mortgage for ‘non-standard construction’ buildings or, for example, a previously-flooded house.
If you don’t want to invest in property right now – or you don’t have the capital required for it – try one of these alternative routes into property investment.
Real Estate Investment Trusts (REITs) offer a way to invest in property through the stock market. Your investment goes into a pool of money with other investors. This property fund invests in different property types, such as residential or commercial rental properties.
As a shareholder, you get the benefit of the fund’s success and share of the profits – without needing a lot of capital.
Stocks and shares
You could also use a stocks and shares ISA to take tax-free advantage of investing in a range of property development and real-estate related stocks and shares.
Property-based funds and trackers help you profit from the success of the property market but, again, without requiring the capital (or time investment) of buying property direct.
Peer-to-peer lending (also known as P2P lending) means you offer your capital as a loan to other individuals or businesses.
Doing this through a platform like Zopa or Ratesetter gives you some stability and control over who gets your money, for how long, and the returns you want to see.
Blend Network is a P2P platform specifically for small-scale property developers. The platform offers returns of 12% on your investment – almost twice as much as most rental yields! British Pearl is another P2P property platform offering returns over 11%. This is, of course, a projected return – but highly achievable.
SO: Is property investment a good idea?
Property investment – in any form – is a good way to diversify your portfolio. People will always need housing, and as demand grows, prices trend upwards.