If you are a current or aspiring buy-to-let investor in UK property, then the direction of house prices in the next few years will be critically important. After all, your total return is made up of net rental income, plus the potential long term profit from capital appreciation. And house prices feed directly into a growing profit—or loss!
Since 2009, we have seen considerable growth in residential property prices, driven by a recovery from the lows of 2007 and 2008 and supported by interest rates at historically low levels.
But all is not as good as it was on the housing front. In the last couple of years, we have seen stalling prices in prime London properties. Savills reported a 13% fall in price since 2014.
Historically, London has led the UK property market—the first to rise and the first to fall. So if the pattern follows past activity we will see property prices start to fall in the Southeast, then Midlands, then North of England in the next couple of years.
The question is what is driving this change in outlook for the property market? I think there are two key drivers: First, the significant changes in taxation of buy-to-let income which is going to hit landlords hard over the years 2017-2020. Second are rises in interest rates from their historical lows back to higher rates which will impact affordability.
Property investors are quick to forget the lessons of the past or to remember that property is cyclical—and that makes new acquisitions somewhat more questionable.
So if you planned to add more residential property to your portfolio, or start investing for the first time, be cautious. If capital growth is suspect, and interest rates start to rise, you could end up with the worst of both worlds: property falling in value and little or no rental income!
Of course, new property in the UK is still needed in huge numbers to provide for the shortfall in housing experienced across the country. So houses and apartments will continue to be built and sold. And in this lies the seeds for investment that my company champions—fixed term investments offering fixed income, with known exit strategies. Secured on property but where you don’t have the hassle of property ownership. We call this the F.R.E.S.H investment strategy. Investments typically offer returns in the range 7% to 15% per annum—exceptional by any measure. To find out more just request a complimentary copy of the F.R.E.S.H Special Report. You’ll be pleased you did.