Investing in real estate within the UK has long been a favourite of both British and international investors. The moderate political climate and general stability that the UK sees has given rise to a traditionally safe and secure property market in which to place your money. While the market can naturally go up and down, investing in real estate in the UK is seen as a solid investment for the long term.
Of course, any investor will want to see success when putting their money into UK real estate. One major factor in whether you will succeed here is which part of the UK you invest in. Location still plays a pivotal role in the success of any real estate investment, so you need to choose where you buy property carefully.
Don’t just take our word for it either! Brian Weal, who is co-founder of real estate and financial investment specialists Swan Holdings Group, also holds this view. With more than 30 years’ experience in the sector, he knows just how important getting the right location is to any investment in this area.
Liverpool – one the UK’s best places to buy real estate
Whether you live in the city or have only visited, you will know how special Liverpool is when you have been there. As a place, it boasts a vibrant energy, plenty of things to do, and a proud history that lives on to this day. All this makes it one of the best places to invest in real estate in the UK. People flock to the city to experience all that it has to offer, which means that you will always have people ready to buy or rent the property that you choose to invest in here.
What to think about for real estate success in Liverpool
As noted above, Liverpool is a great choice to buy property in as an investment, but what other factors can impact the return you may see?
Location, location – of course, one major factor is the particular area of the city that you will find real estate to invest in. As one of the big places in the UK’s Northern Powerhouse, it is great for business, so any property close to transport links is a wise choice. As with all investment in real estate, you also need to consider how easy it is to get into the city centre from the property, how affluent the area is, and what amenities it has. Taking these factors into account will ensure that you invest your money in real estate that will see a good return.
Buy or rent – a key factor when investing in real estate here is whether to buy or rent the property out afterwards. The city is home to the famous Liverpool John Moores University and a large student population. This may make investing in a property to rent out to students attractive as you will have no problem in doing so.
Consider your costs – a major part of any real estate investment is looking at the amount that you will invest and what the potential return will be. With this in mind, you should always consider whether the property that you invest in will need work doing on it. If so, make sure to factor in the cost of this work before investing to see if you will get a decent return on your money.
Think about commercial property – another great tip for succeeding in real estate investment here is to look at commercial properties. You can get pretty good returns on renting out your investment to businesses, especially in up-and-coming parts of the city for business. This annual rental income could soon see you make your initial investment back and more.
Liverpool real estate – prepare for success
Liverpool is a great city to not only live in but also to invest in property. The sheer size of the housing market and the large population mean that property here is always in demand. When you factor in the way that the city is also positioned as a major player in the North West’s business sector, then investing here is a wise move.
Of course, to make sure that it is a success, you need to factor in the points that we have looked at and also learn what you can from experienced investors or professionals. However, as long as you do your research and prepare well, buying real estate in this city should enable you to see a healthy return on your money.
The Ministry of Housing, Communities and Local Government (MHCLG) has released figures that show where homes are being built including those on flood risk zones and potentially contaminated land.
Its figures for 2016-17 show that more homes were built on flood risk areas and the green belt.
More than one in ten (11%) of new residential homes were built within areas of high flood risk. This is an increase on 9% recorded the year before. However, it could be more according to Future Climate Info Urban Homebuyer Flood Risk Report.
Geoff Offen, managing director at Future Climate Info, said: “The government notes more than one in ten new homes in 2016-2017 were built on sea or river flood plains which are prone to flooding. But with more granular information available, it’s possible that even more homes may be susceptible to flooding.
“Our data shows that around one in seven homes in 2016-2017 were at risk of flooding, a figure that climbs to one in three in some urban areas.”
Previously developed land
MHCLG said that over half (56%) of new residential addresses were created on previously developed land, which is 5% down on 2015-16. The main previous land use categories are:
Agricultural land – 16%
Other developed use – 14%
Industrial and commercial land – 13%
Offen commented: “As we build, more secrets beneath our feet may become apparent too late. According to government figures, nearly half of new build properties were built on previously developed land in 2016-17, which means these homes could lie on contaminated land, unstable ground or in areas that exceed legal air quality levels. Homebuyers will only become aware of all risks by assessing an environmental report and then following its advice.
“The risks of flooding, subsidence, sink holes and contaminated soil can all leave unprepared homeowners out of pocket every year. It’s crucial that all homebuyers are informed, prepared and aware of the risks around them.”
Buy-to-let lending is down 47% on levels before the introduction of the 3% Stamp Duty surcharge levied on the purchase of additional properties.
It is also down 64% compared with the pre-2007/2008 housing market crash.
In a new report on the residential housing market, Cushman & Wakefield say that with further phasing in of the reduction in income tax relief will ensure that lending activity stays muted.
The consultancy also notes that some landlords are selling off properties, and that there are only limited numbers of new investors entering the market.
Nevertheless, Cushman & Wakefield think that housing stock in the English private rented sector will contract by no more than 3% over the next two years.
Its report also shows a mismatch between supply and demand, particularly with the most expensive and cheapest properties.
In March, 6.1% of properties listed on Rightmove were at over £1m. However, just 2.7% of completed sales that month were for over 2.7%.
The opposite was true in the sub-£200,000 market, which accounted for 45% of all sales but just 30% of listings.
According to a report in The Guardian, the UK’s property market is stalling during a period that usually marks the midst of the house-selling season.
The Royal Institute of Chartered Surveyors (RICS) had predicted that Brexit would impact both house sales and prices and this seems to have borne out.
What is more, the gap between the asking price and selling price of houses is now around 96%, equating to a difference of more than £10,000 on the average UK house price of £305,000.
So, as house price growth slows, sellers are noticing that when their property lands on the market, the true price realised in the sale is significantly less than they expected.
There are reasons other than Brexit that may be attributed to this pricing gap.
Martin Ellis from the Halifax stated to The Financial Times that the rapid growth in house prices between 2014 and 2016 made houses less affordable, which had a knock-on effect on demand.
In addition, buyers are becoming more comfortable with challenging prices: this confidence is based on a number of factors, including slowing house price growth and rising transaction costs.
Ultimately however, the gap between a seller’s hope of a high return and a buyer’s expectations of a substantial discount, is a reflection on the fact that in general, many houses have been over-priced.
So the message is: those in the property market need to be more realistic.
Sellers – some advice
Go for the agent who definitely wants to sell your property. It has happened that sellers become locked into contracts with agents who are not adequately working for them.
An overvaluation can detrimentally impact on the saleability of your home so don’t be tempted by inflated estimates.
Try to agree on a price that raises the maximum amount of interest from buyers – admittedly a difficult call to make.
Question the agent more. Find out what properties the agent sold within the previous six months and what actual discount was levied on those properties.
And for potential buyers…
Many homeowners who would otherwise want to take advantage of rising prices are now holding off putting their house on the market. This is leading to a general lack of affordable housing. So, if you find a property that is suitable for you, move quickly.
Be open-minded and flexible with your wish-list. You may not get everything you want in a property, so you may have to make compromises in order to get on the property ladder.
Bear in mind when applying for a mortgage that interest rate rises are expected before 2020.
Gazumping, where sellers pull out of an accepted offer because they have received a higher price from someone else, is more likely if your offer is relatively low. With gazumping you run the risk of losing money that you have already invested in the transaction for example professional and valuation fees. So, be mindful of this possibility when making an offer and agreeing on a price.
Figures have revealed the extent of the loss of council housing across London between 2016 and 2017. The Canary has been given access to in-depth calculations, which show some boroughs losing council homes at a shocking rate, including one which lost 5% of its total in just one year.
Number crunching in London
As Inside Croydon reported, figures [xls] from the Ministry of Housing, Communities and Local Government on the number and type of houses across England show that, in London, there were 3,620 fewer council-owned houses in 2017 compared to 2016. But, for the first time since 2014, there was also a net loss in the number of overall social housing properties (including housing association stock).
Green Party London Assembly member Sian Berry has crunched the numbers:
She also gave The Canary the breakdown of the net change in the number of council homes by borough. The figures show that some boroughs were losing council homes at a far faster rate than others:
Labour’s housing problem
Labour-led boroughs reported some of the highest losses. These included Ealing, which lost over 5% of its total council housing stock; Hackney, down 1.7%, and Islington, down 2.2%.
James Murray, Deputy Mayor for Housing and Residential Development, told The Canary:
Sadiq wants to get London building much more social rented housing, and so earlier this month he launched the first-ever City Hall programme dedicated to council housing, that will help get 10,000 new council homes underway over the next four years.
But the fact of the matter is that, at the same time, London is losing council homes through the national Right to Buy, and the government is failing to give councils the resources or obligations to replace any homes sold. To do all he can to help protect social housing, Sadiq’s new scheme offers councils an innovative way to ringfence their Right to Buy receipts to invest in building new homes to replace those sold in the local area.
As Mayor, Sadiq has also introduced tough new policies that, for the first time, protect any social housing that may be demolished, including by giving residents a say through ballots on schemes that want his funding. Although a true step change in the amount of social housing in London will require far more money and powers from national government, Sadiq’s efforts already mean London has started to build homes based on social rent levels again after the pipeline he inherited from the previous Mayor shamefully saw new social rented housing drop to zero.
Stop knocking down homes
But Berry told The Canary:
Londoners’ housing needs mean we should be seeing a net gain of more than 30,000 council homes each year, so it’s shocking and disastrous to see that up to last year we lost more than 3,600 council homes instead.
The new stats for each borough show this is partly due to speculators driving Right to Buy sales in high value areas like Islington, but the drop in council home numbers is also more acute in some boroughs with big ‘regeneration’ programmes, like Ealing and Barnet.
Responsibility for this has to lie ultimately with the Mayor. London clearly needs more powers over housing policy to put a brake on Right to Buy. But our councils also need to stop knocking down our existing homes, and our Mayor needs to do more to prevent this with the powers he already has.
Khan is going to have his work cut out if he’s going to stem the tide of London’s housing crisis. So far, his plans have not held water with politicians like Berry. And it remains to be seen if London’s Labour Mayor will be any more effective than his Conservative predecessor at restoring social housing across the capital.
In April letting agents saw the highest number of landlords selling their buy-to-let properties since records began in 2015, with the number of landlords exiting the market rising to five per branch from four in March.
ARLA Propertymark found in March, the figure rose for the first time in almost a year, to four landlords per branch, after sitting at three landlords consistently since April 2017.
The number of prospective tenants registered per member branch continued to rise, increasing by 9% in April. In March, agents had 66 tenants on their books on average, compared to 72 in April. This is the strongest demand seen since September, when there were 79 registered per branch.
David Cox, ARLA Propertymark, chief executive, said: “The barrage of legislative changes landlords have faced over the past few years, combined with political uncertainty has meant the BTL market is becoming increasingly unattractive to investors.
“Landlords are either hiking rents for tenants or choosing to exit the market altogether to avoid facing the increased costs incurred.
“This in turn is hitting renters most, at a time when a huge number of people rely on the rented sector, and leaves us with the question of where will these people find alternative homes?
“As demand for private rented homes massively continues to outstrip supply, the government can no longer divert its attention from the broken housing market.
“The recent news that the government is regulating the industry is a step in the right direction, but ultimately we just need more homes.”
The number of tenants experiencing rent hikes increased to 26% in April – the highest since September 2017 when 27% of landlords put rents up for tenants. Year-on-year, this has risen from 24% in April 2017.
The number of rental properties letting agents managed remained the same as the previous month in April, with 179 on average per branch
Year-on-year, this figure is low. In April 2017, agents managed a similar 185 per branch but in April 2016, they managed 185 and 193 were recorded in 2015.
Household borrowing nudged up in April, signalling that consumer confidence could be headed for a recovery.
According to the Bank of England’s Money and Credit report, net lending for consumer credit came in at £1.8 billion last month.
It represents the highest level since November 2016 and is a bounce back from March’s paltry £400 million, which was the lowest level since November 2013.
The increase was driven by credit card spending and other loans, helping the 12-month growth rate in consumer credit rise to 8.8% versus 8.6% in March.
Howard Archer, chief economic adviser to the EY ITEM Club, said the data may play into the Bank’s thinking when considering whether to hike interest rates in the coming months.
He added: “The Bank will be focusing on whether the rise in unsecured consumer borrowing in April is a sign that consumer appetite for borrowing is beginning to pick up anew or primarily a rebound from a particularly weak performance in March, when consumer activity and borrowing was affected by the severe weather.”
The Bank’s figures also show that UK mortgage approvals dropped slightly in April, falling from 62,802 to 62,455.
Mr Archer said that the numbers indicate that housing market activity “remains muted” as it remains under pressure by limited consumer purchasing power, fragile confidence and likely the prospect of an interest rate rise.
This was borne out earlier on Thursday when figures from Nationwide Building Society showed house prices went into reverse in May.
Southern cities are seeing property prices stall, according to the latest Hometrack UK Cities House Price Index.
The latest Hometrack UK Cities House Price Index has found that sellers in southern England are being forced to accept greater discounts on their asking prices in order to achieve a sale in comparison to other cities in the midlands, northern regions and Scotland.
The largest discounts in southern cities were found in London, Oxford and Cambridge, reaching up to 4.7 per cent on average. The latest data revealed that the gap is also starting to increase in Bristol, Portsmouth and Southampton due to growing affordability pressures increase.
In contrast to the southern trend, Aberdeen has the largest discounts from asking prices at 9.6 per cent. In the last year prices have fallen by 7.2 per cent in the city and by almost 20 per cent since 2014;
Overall city house price inflation has stalled at 4.9 per cent in April, with average values in London up by just 0.8 per cent over the last year. This effect has been worsened by sub-par average growth in in Southern cities such as Southampton, Portsmouth and Bristol.
Manchester saw the strongest house price growth at 7.7 per cent, whilst Leicester and Edinburgh saw growth of 7.4 per cent and 7.2 per cent respectively. These cities are all noting higher than average house price growth.
Insight Director at Hometrack, Richard Donnell, says: ‘The strength of house price growth and level of discounting from asking prices reveals how the current housing cycle continues to unfold. The overall pace of overall city level growth has lost momentum as a result of virtually static prices in London and slower growth across southern England. Weaker consumer confidence and modest increase in mortgage rates are also impacting demand and mortgage approvals for home purchase have drifted lower in the last quarter.’
He continued: ‘The cities index reveals, how macro and local factors such as the strength of the local economy and the relative affordability of housing are influencing the pace and direction of house price growth.’
The government’s Help to Buy loan was launched in 2013 with the aim of helping young people onto the housing ladder.
Available only for new-build homes, the idea is simple: the government lends buyers up to 20 per cent of the cost of the home, and the buyer then only needs a 5 per cent cash deposit and a 75 per cent mortgage to make up the rest.
The government part of the loan – the 20 per cent – is interest-free for the first five years.
Between the scheme’s launch in April 2013 and the end of December 2017, almost 159,000 properties were purchased using a Help to Buy loan.
This year marks the fifth anniversary of the scheme, which means payments on the first Help to Buy loans are now becoming due, initially at a rate of 1.75 per cent. On a loan of £40,000 this equates to £700 a year or £58.33 a month. After that, they will increase by the rise in retail price index, plus another 1 per cent every year, which means that £58.33 monthly repayment will shoot up to at least £91.60 in year seven.
So with this in mind, is the Help to Buy scheme a good investment or is it a ‘buy now, pay later’ scheme about to cause financial problems for many suddenly faced with new interest payments?
You can get on the housing ladder sooner
The first clear benefit of the scheme is that it can help first-time buyers get onto the housing ladder a lot sooner than they may otherwise have been able to. With Help to Buy, borrowers only need to find a 5 per cent deposit, which means not only can they can save their deposit more quickly, but, as house prices have risen significantly over the past five years, means they potentially bought the property for less than if they had had to wait. The value of this has already been demonstrated by the 159,000 who have already used it.
You could buy with a smaller deposit but get better mortgage rates
To buy your first home most lenders are looking for 10 per cent deposit. Which means on a house worth £179,594 (the average cost of a first time buyer property) the buyer would need a deposit of £17,960 and be left with a mortgage of £161,635.
With the Help to Buy scheme, the government puts in 20 per cent and the borrower only has to find a deposit of 5 per cent. This means on the same property, the borrower pays a deposit of £8,980 but is left with a much lower mortgage – £134,696 and therefore a better loan-to-value and consequently a lower mortgage rate. So, not only is the main mortgage lower, but the client also gets a more competitive rate of interest.
You can borrow interest-free for five years
Buying a home is obviously an expensive business, but it does not stop once the contract is signed and the house is bought. There are all sorts of other expenses in the first few years of owning a new home, and the fact the government portion of the loan is interest-free for five years can be very helpful.
However, while the Help to Buy scheme gives those who could not otherwise afford to buy the opportunity to do so, there are drawbacks, and advisers must ensure their clients have carefully considered these before committing to a loan.
The loan gets more expensive
The interest on the government portion of the loan is quite low when it becomes due: 1.75 per cent. However, after the sixth year, the rate starts to increase. The borrower needs to have budgeted for this, which is what the first swath of Help to Buy borrowers are facing right now.
This sudden introduction of charges can cause problems for those who are unprepared
While the interest-free loan seems very attractive at the time, once the borrower has to start paying it back, interest will increase by 1 per cent plus any increase in the RPI each year. So even if the RPI falls at any time, charges on the government loan will still increase by at least 1 per cent, which on a £40k loan is at least £30 a month more each year. This ever-increasing cost is something potential buyers need to be aware of and prepared for.
It is therefore vitally important that advisers make it clear to their clients looking to use Help to Buy that the loan is not interest-free indefinitely, and make sure they are in position to put money aside to prepare themselves financially for when the loan does need to be paid back.
Uncertain future
Not all lenders will lend on Help to Buy, which means that when a client does come to the end of their deal, their options may well be restricted. This, combined with the rising costs of the government part of the loan, means clients need to be cautious.
Advisers need to ensure their clients are familiar with the lenders who will remortgage a Help to Buy deal, so they can help their clients to remortgage if need be.
You could fall into negative equity
We know that house prices fall as well as rise, but due to the structure of the Help to Buy loan, there is a risk of negative equity.
There is speculation that Help to Buy has inflated house prices, and that those on the scheme have paid more for their new builds than they are actually worth.
This means if house prices fall, there could be Help to Buy borrowers in negative equity. As first-time buyers quite often move after two or three years, this could cause real problems, especially if these borrowers come to the end of theirdeals and find their LTV has actually increased.
There is also the issue that homes bought new using the scheme are competing with new builds, making it harder for their owners to sell, possibly forcing them to drop their asking prices.
Your home is not 100 per cent yours but you are responsible for it
With a standard mortgage, the lender’s charge only covers the amount owed, with the borrower retaining any additional equity at the point of sale.
With Help to Buy, advisers need to make it clear to clients that the government has a charge for the initial 20 per cent borrowed but will also benefit from any rise in the property’s value, even if this is due to improvements the client has made and paid for.
Advisers also need to make clients aware they will need permission to make any substantial improvements to the property and will pay 100 per cent of the cost of those improvements, but only receive 80 per cent of the profits.
You cannot rent the property out
One of the stipulations of a Help to Buy loan is that you cannot sublet it, something, Dave Miller warns, many people are unaware of.
“If a couple who both own their own homes decide to move into together, it would be quite sensible to move into one property and keep the other one as an investment and rent it out.
“But, if that property was bought through Help to Buy, subletting it puts the owner in breach of their loan agreements. The only way a Help to Buy can be rented out is by repaying the Help-to-Buy part of the loan.”
So is it worth it?
The expectation was that the borrowers’ wages would go up, or the value of their home would increase, or both, leaving them in a position after five years to either pay off the government part of the loan in full or start paying back the loan on top of the rest of their mortgage payments. But for many it may not have worked out like that.
Many houses bought on Help to Buy schemes have not increased in value as much as the owners may have hoped, while some have actually dropped in value, often because the original prices were inflated.
We have also seen wages stagnate, inflation rise and interest rates may rise soon, which means not only will those on Help to Buy see their government loan due for repayment, but could see their monthly mortgage repayments rise too, a double whammy.
The Help to Buy scheme has seen lots of first-time buyers taking on a huge financial commitment, thinking their financial position would improve by the time the first payments were due, but five years down the line some are now finding they are not quite where they wanted to be and this could start to cause affordability issues.
Nevertheless, the scheme has been very useful, and many first-time buyers who otherwise would have not been able to get a foot on the property ladder have done so.
Advisers need to ensure any client looking to buy using the Help to Buy scheme is fully aware of all the pros and cons and that their situation suits the scheme. Once a client is on the scheme, advisers should be contacting them at least annually to ensure they are making preparations forthe future.
We do not want to end up in an interest-only mortgage situation, with customers burying their heads in the sand until it is too late.
The government must reform the British business rates system or risk “killing” a huge part of the UK commercial property market, according to a fund manager who runs over £2bn of commercial property assets.
Marcus Phayre-Mudge runs the £1.5bn TR Property investment trust for BMO, a trust which has 9 per cent of its capital deployed in physical buildings, none of which are in the UK.
The remainder of the capital is deployed in property shares, where the only UK exposure he has is to niche property businesses in areas such as student property and warehouses.
He said the dynamics driving property in the very centre of London have changed since the financial crisis, with banks now more reluctant to lend for large developments.
Mr Phayre-Mudge said bank loans have largely been replaced by capital from private equity and sovereign wealth funds, making prime London property less vulnerable to higher interest rates.
But he remains concerned about valuations, and what he said will be the significant impact of changes to business rates on commercial property.
He said: “The dynamics have changed since the financial crisis, with banks now much less likely to lend for large developments. This means UK commercial property is less sensitive to interest rates.”
The area of the market he believes will be “killed” by the changes to business rates is property let out to retailers.
He said the challenges faced by those companies from the rise of internet shopping has been made worse by the government’s changes to the business rates rules.
Business rates are levied based on the rateable value of a property. The rate varies depending on location in the country. A business with a property that is assessed as having a rateable value of above £51,000. If a property is given this value, then the rates bill faced by the business is £51,000 multiplied by 49.3p. For businesses with property at a rateable value of below £51,000 the value of the property is multiplied by 48p.
The government carried out an assessment of the value of properties in 2015, and decreased, or increased the rates owed accordingly.
The higher rates took effect from April 2017, two years after the valuations were made.
Mr Phayre-Mudge said online retailers such as Amazon have been advantaged by the change, as they require less real estate in cheaper out of town areas to do their business.
This means such companies have much lower costs than the bricks and mortar retailers who rent buildings from property companies.
It is the latter companies that are widely held in property funds bought by private investors and their advisers.
He said if the government do not act on the issue then vast amounts of retail property will lie empty, hurting the returns of property funds.
Robin Geffen, fund manager and chief executive at asset manager Neptune, said structural forces in addition to technological change means UK commercial property is a poor investment.
Greater scrutiny of UK overseas territories that act as tax havens will also damage the returns available to investors in UK property, he said.
Mr Geffen added: “There is about £122bn of UK property assets owned by entities in these tax havens.
“That is a lot of money for one asset class, wherever that money has come from and whether it is hot money or not I think the greater level of scrutiny could lead to issues for that asset class.
“UK property has been a poor performer lately for other reasons, and I expect this is only the start of it. It is certainly not a risk I would want my 86-year-old mother exposed to.”
Mr Geffen added: “If you go to the top of a really tall building in London at night, look at all of the cranes. There is still a lot of building happening.
“But if you walk down somewhere like the Embankment in London at night, then look at all of the newly built flats, at how few of them have lights on.
“These companies can build the property at very low cost because interest rates are low, and then just hold them on their balance sheets, but they can’t do that forever.”
He said a contact of his who has been a professional investor in UK property for decades has the largest cash weighting he has ever had as a property investor, higher even than in previous financial crises.
Paul Stocks, financial services director at Dobson and Hodge in in Doncaster, said he has been much less keen to place client money in property funds since the global financial crisis.
A spokesman for HM Treasury said thousands of UK businesses don’t pay rates at all, and that the reforms they have implemented show they have listened to business.
