Part 1: Spotlight on the UK Property Market
Long a magnet for overseas investors, the UK residential property market has an international reputation as a secure and profitable investment prospect. And with shifting socioeconomic factors – a trend towards renting property and the devaluation of the pound, for example – the conditions have become more favourable for international investors.
In this 3-part series, we explore UK real estate as an asset class. We’ll consider the numerous ways in which you can incorporate property into your investment portfolio – and take a strategic look at how to leverage property at the various stages of your life as an investor. But first, let’s dive in with an exploration of attitudes to property and an overview of the current UK property landscape.
Deconstructing the UK property obsession – Bricks and mortar versus shares and bonds
Over the long term, investing in companies via shares has delivered higher returns than investing in real estate. Despite this, many investors feel more comfortable with bricks and mortar – especially in times of market volatility – with some even going as far as replacing their pensions with property portfolios.
How do we account for this? It could be that property as an asset is tangible – or that it’s easier to understand as a concept. Perhaps, at a fundamental level, investors draw comfort from the fact that property in its physical state is a form of shelter. Culture and history also play their part: as a nation, the UK has long aspired to home ownership as a stamp of achievement.
For many, feeling in control is a consideration, too: we often encounter investors who would rather put their money into property than hand it over to an investment manager or pension fund. For these individuals, the juxtaposition of a tangible property investment and an investment in a company (that they might not fully understand) makes real estate an easy winner.
This is undoubtedly a complex issue. But whatever the reasons for it, this property obsession has created a dynamic and liquid UK property market – one that offers exciting and diverse opportunities for international investors. And with the right strategy, you’ll find an investment opportunity that suits your circumstances and will help achieve your financial goals.
Rising prices, albeit with slower growth, make property an attractive medium to long-term investment
From Brexit and the pandemic to adjustments in stamp duty and green efficiency requirements, a multitude of factors – some of which we explore in this article – have left their mark on the UK property landscape in recent years.
However, the first thing to note about the current state of the market is that house prices in the UK continue to rise. And although growth is set to cool in the next 18 months, the demand/supply imbalance in the UK (as well as in many major European countries) make property ownership an attractive medium to long-term investment.
Bear in mind that the north of England has cemented its reputation as a property hotspot, with cities including Birmingham, Liverpool and Manchester – which also have large student populations – seeing significant interest. International investors are also taking advantage of currency swings to get more for their money.
As the rental market grows, international investors are leveraging property investments to obtain a regular income stream
While the UK yearns for property ownership, current circumstances – which we explore below – have led to an explosion in the rental market, creating opportunities for investors to earn a regular rental income:
- As the cost-of-living crisis is compounded by inflation devouring savings, younger generations face increasing difficulty getting onto the property ladder – 25% of UK citizens under 40 are now renters
- In the post-pandemic world, companies are encouraging (and in some cases forcing) workers to return cities
- Individuals seeking vibrancy and culture are also returning in droves after extended periods away
This combination of circumstances has created a demand for rental properties that has vastly outstripped supply. To illustrate the point, consider these statistics (courtesy of the FT): In London during July there were, on average, 127 new tenants registered with each letting branch, with just 11 new properties on each branch’s books.
This imbalance means that international investors can leverage property investments to create a regular income stream. It’s worth nothing that shifts in regulations and tax rules have put off some investors. In addition to the 2% stamp duty surcharge, the drive for net zero means that from 2025, all rental properties must have an EPC rating of C or above. As a result, new builds are increasingly an attractive proposition for investors (and renters looking for strategies to circumvent rising energy costs).
Incorporating a UK property investment into your portfolio can provide stability and diversification
While some investors are giving up pensions for property, we believe that diversifying across asset classes to create a well-balanced portfolio is the key to a successful financial plan. And in the context of retirement, it’s worth noting that some SIPPs (Self-invested Pension Plans) even allow you to hold certain types of commercial property within their structure.
Whether you invest directly in property or look for alternative structures to meet your goals, real estate offers a myriad of opportunities for the international investor – look out for parts 2 and 3 of our property series to learn more.
And if you’d like to find out about how Lawsons Wealth will help find property investment opportunities to diversify your portfolio and meet your goals, get in touch with a member of our expert team.