Reasons to Invest in UK Property. Part 1.

uk real estate

Why consider investing in real estate in general?

The property business has been proven to be a financially rewarding investment, especially when looking at the long-term return and economic stability and the safety it provides during retirement.

Real estate is a self-sustaining asset while stocks, bonds, or mutual funds are a self-liquidating asset, therefore, investing in real estate is the smart way to go for immediate return and long-term savings. 

Considering that properties are easy to purchase, easy to improve, and there are no insurmountable financial barriers to join, they are an investment of choice and of convenience.

In comparison to the stock market, which is the speculation ground of knowledgeable financiers, investing in real estate is not on the speculative side of investments; instead, it offers predictable cash flow while appreciating in value thus keeping up with inflation. It also provides a higher return because of positive leverage ( if you consider investing borrowed funds: investing them in real estate will provide you with a return rate higher than the rate at which it was borrowed).

What makes the UK property market so attractive?

With a consistent undersupply against demand –the UK is a good place to invest in property. (see the section below “The UK housing shortage” for more details).
Historically, property prices have been on a rising trend since the 1970s despite some instability during the recession and the credit crunch; new research has revealed that house prices have grown faster in the UK than any other European country, in fact since 1988  house prices have gone up by 333%, which translates to an average rise of 12.3% per year.

UK property
Source: UK House Price Index

Despite the last few years being a rough period for the UK real estate investment market, due to Brexit’s negotiations shaking people’s faith in the market and the addition of the coronavirus outbreak changing how we all live, work, and invest, there’s been a lot for investors to adapt to. 

With the uncertainty cloud floating above both the property market and the economy as a whole, many investors are currently asking the question ‘should I invest in UK property right now or wait?’

Contrary to common belief, now is actually one of the best times to invest in real estate in the UK (Read more about UK real estate investment). 

Historically, it has been shown that during periods of economic struggle, the property market is inevitably affected. 

It is, however, important to also acknowledge the ways the market recovered following these events: 

The Great Global Recession of 2007 – 2009 had to date the most profound impact on the property market. 

According to data from the Land Registry Index, the average price of a property in the UK dropped by 18%, with a fall from £189,193 in December 2007 to £154,452 by March 2009. Transactional levels also dropped from 1.65 million to 730,000 from June 2008 to 2009.

Source: UK House Price Index

While these figures presented a bad forecast for the market, UK property prices began to recover quicker than expected. 

By August 2010, the average property prices had risen to £173,417, and by mid-2014, had fully recovered to pre-crisis levels.

The second impactful event would be Brexit as it had the biggest impact on the UK property market in recent years, even though the impact that Brexit effectively had on property prices was not as dramatic as first forecasted. 

According to market data recorded by Halifax, figures from the Land Registry and the ONS show inflation fell back to 1.1% in February 2020, after climbing to an eight-month high of 1.5% in January 2020.

The latest house price data published on GOV.UK shows that average house prices in the UK increased by 2.1% in the year to March 2020, up from 2.0% in the year to February 2020. 

Annual house price rates, UK, January 2006 to March 2020

Source: UK House Price Index

Over the past three years, there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England, but there has been a pick-up in the annual growth since December 2019, which could be attributed to the infrastructures under construction (see section “Investment in Infrastructure” in this article).

Average house price, UK, January 2005 to March 2020

real estate crowdfunding
Source: UK House Price Index

The average UK house price was £232,000 in March 2020; this is £5,000 higher than in March 2019 

On a non-seasonally adjusted basis, average house prices in the UK decreased by 0.2% between February 2020 and March 2020, compared with a decrease of 0.3% in the same period a year ago. 

On a seasonally adjusted basis, average house prices in the UK increased by 0.1% between February 2020 and March 2020, following a decrease of 0.1% in the previous month.

Average house UK, January 2005 to March 2020

Source: UK House Price Index

All dwellings annual house price rates of change, by English region, year to March 2020

The strongest regional growth was in London

Source: UK House Price Index

And now the Coronavirus crisis “hit”: it’s worth keeping in mind that figures may be slightly inaccurate as many property indices, including the government’s official release, were suspended during this period, making it more difficult to collect accurate house price data.

According to the latest Nationwide House Price Index, U.K. house prices decreased 1.7% in May over the previous month, the biggest monthly fall since February 2009 following the Financial Crisis of 2007-08.

But the good news is that property activity has quickly recovered since the restrictions were lifted, and while it’s still too early to forecast house price growth, there are strong indicators that prices will remain relatively stable and are in fact likely to go up rather than down; also, the raft of policies adopted to support the economy, including to protect businesses and jobs, to support peoples’ incomes and keep borrowing costs down, should allow a rebound once the shock passes and help limit long-term damage to the economy.

Increased demand was emerging over the lockdown and spiked as the English market reopened. Rising demand also leads to new supply as households with the prospect to relocate will then list their homes for sale.

Demand starts to fall back off a high base

Source: Zoopla Research- data to 18/6/2020

To get the full picture of  what is going in the UK property market, read 

“Reasons to Invest in UK Property. Part 1” and  “Reasons to Invest in UK Property. Part 2“.