Dynamic Perfect for Investment in UK Residential Property

According to The Telegraph, chronic undersupply of housing in the UK continues to push up house prices as construction fails to meet rising demand.

According to The Telegraph, chronic undersupply of housing in the UK continues to push up house prices as construction fails to meet rising demand.

The number of new home starts in the second quarter of 2015 fell 14% to 33,280, representing a decline of 6% year-on-year.  In the twelve months to June this year, there were 136,320 starts, down 1% on the previous year and well behind the estimated 240,000 homes the UK needs to build annually in order to meet public demand.

House prices increased an average 4.3% during the second quarter of this year, representing the highest quarterly growth for the past 11 years.  Price inflation for the year end is projected to be around 10%.

Gráinne Gilmore, head of UK residential research at Knight Frank said:  “The strength of the UK economy, rising wages and an undersupply of housing stock on the market are combining to underpin UK house prices.”

Rising house prices are also evident in the mortgage sector with the Council of Mortgage Lenders reporting that gross mortgage lending had reached £22bn in July, a seven-year peak.

“We expect lending activity in the rest of the year to be underpinned by improving economic fundamentals, but kept in check as any upward pressure on house prices further stretches affordability for some buyers,” said Mohammed Jamei, an economist at the Council of Mortgage Lenders.

Profits Up for UK Homebuilders

British construction firm Bovis Homes posted buoyant results for the first half of 2015, despite an expected slowdown in the run-up to the general election; recording an increase of 9% in first half net profit to £56m, as Bovis completed a record number of homes.  The average sale price per legal completion increased 10% to £264,200.  Meanwhile peer Persimmon saw a massive 31% increase in pre-tax profit.

“The positive housing market conditions in the UK continue with growth in both transaction levels and sales prices,” a Bovis spokesperson said.  “Housing demand continues to run ahead of new housing supply with the availability of development land supported by increasing levels of planning permissions.”

Demand for UK BTL High among Young Investors

New research has revealed that as many as 4 million people aged 18-39 are actively seeking to acquire a buy-to-let (BTL) property, eager to cash-in on the well-documented boom.  The report found that almost half of young people hold the belief that becoming an amateur landlord is the best investment available, with many keen to jump on this increasingly popular bandwagon.

Increasing interest from younger BTL investors is expected to propel demand for the sector even further.  Interest in BTL is already outpacing demand for principal homes by some distance and with mortgage rates on BTL properties at record lows; demand is expected to remain high despite George Osborne’s recent measures to restrict higher-rate tax relief on properties of this type.

BTL Most Appealing Investment in UK Market

It is no surprise that becoming a BTL landlord has significant appeal to the younger generation.  Demand in the private rented sector has increased substantially in the last few years and continues to go from strength to strength.  BTL landlords are achieving excellent rental yields and considerable returns on their investments by purchasing in the right areas.

The main risk facing BTL investors is inconsistent tenancies which can be seriously detrimental to margins.  The way to protect rental properties against prolonged void periods is purely down to due diligence.  The criteria for selecting an investment property is completely different to that for purchasing a principal residence and location, location, location is even more important when you want to attract long-term renters.

It’s common-sense but it’s very important to consider areas of potential growth, when seeking a BTL property in the UK.  Major cities and towns will have greater demand for rental properties than rural areas and tiny villages, as will locations near university campuses and cultural or financial centres.

Choosing the right BTL property in the best locations has become an art in 2015, particularly with the extent of the UK’s housing shortage.  However, there are still plenty of value opportunities available and the British property market’s dynamic is extremely favourable to investors, both overseas and domestic.

- Monday 14 September 2015

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