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Insight & Opinion

Diversity, potential & proven success: Why the UK’s buy-to-let sector is a fantastic investment opportunity

Author: Jerald





Cityscape show newspaper

As featured in Cityscape Global 2017 Official Show Newspaper

Buy-to-let has become a big deal in the UK property market, growing in prominence ever since the global financial crisis (GFC) plunged the formerly healthy owner-occupier sector into a state of disarray in 2008. Since the recession, there has been something of a change in attitudes towards UK real estate, and the buy-to-let market has stepped up to the plate in a huge way.

For British people, it was once seen as one of life’s big milestones to own a home, however in the past few years attitudes have shifted significantly. Eurostat data shows a continued fall from the highs of the mid-90s, when three-quarters of people owned the property they lived in, to a reality in the mid-2010s, where fewer than two-thirds do.

This change in both ability to afford a home and personal choice has allowed the market to grow, and in the past ten years, more than two million more homes have been added to the market. It means that as of now, according to Council of Mortgage Lenders (CML) data, there are more than 4.3 million privately-let homes in the UK, representing 19 per cent of all real estate in the market.

And it’s not over yet. For overseas and UK investors alike, the rented sector remains a fantastic place to spend money, and for those with the long term in mind, there’s a real opportunity to earn big in the coming years.

Attractive asset classes

One of the big advantages that the UK market’s rental sector has at present is that there is a diversity that begs for a range of investors to come and play. For example, with more than 2.2 million students (according to Universities UK) studying in the UK, and nowhere near enough institution-owned rooms to go around, there’s a continued need for more high-quality private properties to be brought to market. It’s an asset that’s grown in prominence in the last five years, repeatedly seeing investment of billions of pounds per year. And with the potential for returns in excess of eight per cent, it’s easy to see why.

The change in attitude that has seen more young professionals choose to rent has also created a new investment asset in off-plan build to rent accommodation. Specially-designed blocks that are dreamed up with tenants’ wants and needs in mind bring something new and exciting to the market. And their locations, in areas where new business is attracting skilled young people for the first time, means demand is sky-high for premium rental homes at present.

Investment areas with potential

Speaking of demand in the rented sector, the best investment opportunities in the UK can currently be found in areas that people might not expect to see flourish. For years, foreign investors were piling their money on London, the perennial safe haven of the UK property market. But things are changing steadily, and we’re seeing Manchester, Leeds, Birmingham and Bristol set to be joined in the elite ranks by new cities with exciting potential.

Two examples of this are Liverpool and Luton. The former is home to a growing demand on two fronts. On one hand, the 57,000-plus students who reside in Liverpool have made the city one of the newest hotspots for investment in related accommodation. In addition to this, the average of 194 new start-up companies forming each year in the city (according to Tech Nation) is helping to push demand for new-build rental homes that skilled young graduates are seeking out.

In Luton, the sector is equally exciting, but markedly different. The market here is aimed at former London residents who are moving out of the M25 bubble and spreading their commute ever further east. The town has seen billions in investment in the last few years, and offers investors fantastic returns. Over the past 12 months, the 4.23 per cent increase in rental prices (according to a Landbay report) has led the UK in growth. If we couple this with the fact house prices allow investors to buy stock at just half the price of London, we see why commuter towns like Luton are fantastic options with real potential.

Macro-economic factors

There are a number of different reasons why UK property represents real investment potential for investors across the Middle East, but chief among these is the effect of political unrest in the past year. A hung parliament and a highly controversial decision to leave the European Union (EU) have both well and truly opened the door for overseas investors, with the value of the pound falling dramatically, and yet to recover as a result.

The falling pound, which dropped against the dollar from 1.49 before the EU referendum to 1.3 a year later, means that those buyers in countries linked to the dollar, including Qatar and Saudi Arabia, are able to get more for their money when investing in UK property. It means that not only is the UK a good option in general for rental returns, but the potential for substantial capital gains is also markedly higher than it has been for some time for overseas buyers.

Things to consider when investing

When investing in the UK as an overseas buyer, there are a number of different things to consider that will help you decide if it’s the right option for you, as well as how much you need to spend. These can include choosing the right assets in the right places.

There are many demographics in the rental sector as it grows in prominence, including families, older residents and young professionals. When buying stock, remember to consider what these different groups want from their home, and buy in an area where you know they are likely to want to live. Research really counts in the buy-to-let market.

You also need to be considering finances before you commit to a purchase. When you spend on UK property, there are a number of additional charges it’s worth factoring into your budget. For example, you will need to pay Stamp Duty tax of between one and four per cent on top of the price of the home, as well as a three per cent levy for rental market investment. You’re also likely to be liable to pay income tax and capital gains tax (should you choose to sell), so it’s always worth getting financial advice before you choose to buy, just so you know what you might face in terms of additional charges.

Investing in UK property can be a fantastic option for those from across the globe, particularly the Middle East. With excellent asset diversity, strong potential and a proven record of success, if you get it right, then UK buy-to-let can be a fantastic opportunity.

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