Investing in real estate is not always guaranteed a profitable outcome. In some cases, it can be a hit or miss venture and greatly depends on several different factors and influences, such as the state of the housing market, the economy, interest rates and, most importantly, location.
The condition and price of a home can be easily changed, but its location cannot – which makes it all the more important to choose a neighbourhood, area, city or country that is seen as desirable to residents and tenants. A desirable location creates demand, and demand raises property prices.
In other words, the outcome of your property investment relies heavily on the location you choose to purchase real estate. In fact, it makes all the difference.
So, the question we are posed with today is whether or not the UK is one of these ideal locations that offer lucrative investments in real estate – and the short answer is a resounding yes. But we know that’s not a good enough response.
Today, we look at the reasons as to what makes property a good investment in the UK.
Should you invest in UK property?
The UK consistently features on lists ranking the world’s strongest real estate markets and best countries to invest in property – and there’s a good reason for that. Even with the massive knocks caused by Brexit and the COVID-19 pandemic, the UK housing market still managed to thrive, albeit in a different way.
And as of right now, as we stand just a month into 2022, the real estate market in the UK is still showing positive signs for the year to come, with average property values at an all-time high.
So, whether you plan to purchase a UK home as a buy-to-let investment or as a place to reside in, you’ll be making an investment that is expected to appreciate in the long term. Here’s why in more detail:
The economy is recovering*
Both Brexit and the COVID-19 pandemic affected the UK economy over the last few years, but it is predicted that the global economy will continue its recovery throughout 2022, while the UK GDP is expected to recover to pre-COVID levels by Q2 2022.
Furthermore, leading global commercial real estate services company, JLL notes that employment numbers are forecasted to continue to rise, and with vacancy levels at a record high, it is more than likely to attract more people to the UK, especially to major cities, like London, Birmingham, Glasgow and Edinburgh.
Cheap debt is still readily available*
One of the few positives to come out of the pandemic was The Bank of England’s base rate reaching a current record low of 0.1%. And the good news is that it is unlikely to change for quite a while. In fact, it’s predicted that the increase will be gradual, with the base rate reaching just 1.2% by 2026.
Additionally, credit scoring criteria loosened significantly from the middle of the pandemic and are set to stay that way at least until the economy fully recovers, while a wide range of mortgage LTV levels are now available and will continue to be so.
Positive property price growths ahead*
When investing in anything, you want to see the price growth to ensure that you’ve made a good decision. Well, house price growth in the UK over the past 12 months has been the highest since before the Global Financial Crisis in December 2007.
And it doesn’t end there. Price growth is expected to continue across all major markets – with a 20% house price growth expected for the period 2021-2026 in the UK, according to JLL*. However, if you’re still debating about where in the UK to purchase property, we would highly suggest looking in urban areas. This is because cities are expected to bounce back more strongly in price growth and rental growth than rural areas, due to a renewed desire to return to a pre-pandemic life.
In fact, this is already being seen in the capital, where average prices in prime central London increased by 1.2% from January to October 2021 – an annual growth figure that hadn’t been exceeded since September 2015**. Furthermore, Savills notes that prime central London house prices are set to rise by 8% by the end of 2021 and increase by 23.9% by the end of 2026***.
Strong rental demand*
One of the most influential factors for anyone looking to invest in UK property is the sizable gap between supply and demand. JLL, one of the leading global commercial real estate services companies, predicts that there will be a shortfall of 500,000 homes as a result of the 1.5 million homes that need to be built over the next 5 years to meet demand.
This is especially good news for investors who are looking to invest in buy-to-let properties, as the market is leaning heavily in favour of renting but can’t deliver the supply to meet demand.
Rising rental prices
We discussed the positive house price growth forecasted for the UK over the next 5 years, and the same can be said for rental value growth, particularly in prime areas of London, where figures climbed to multi-year highs in October**. Furthermore, rental value growth in London is expected to increase by a total of 22.2% over the period 2021-2026***.
Yields, yields, yields****
Currently, the average UK rental yield sits at 3.63%, which is not too shabby, but you want the highest rental yield area possible. If your key objective is to find a lucrative buy-to-let property, consider looking out of central London to prime areas in Greater London and the South of England, where property prices tend to be lower and rental yields are usually above average. Not to mention, UK rents are forecast to rise by 19.9% over the next five years***.
However, if you’re looking for an investment that appreciates over time and gives you the best ROI, then London property is the right fit for you.
Generation Rent is here to stay
Generation Rent refers to young adults, usually between the ages of 18-40, who have been priced out of the housing market – meaning that they are unable to afford to buy a home due to high prices and, therefore, have no other choice but to rent instead.
Naturally, there are more reasons than just the above as to why so many modern individuals choose to rent instead of buy. For one, it offers more flexibility and requires less commitment, as well as being a cost-effective alternative. All this points to Generation Rent being around for a very long time, which ultimately means a growing rental pool for buy-to-let investments that just keeps increasing by the day – so take advantage of the opportunity while you can.
Cities or countryside? Why not both?*
In a weird and wonderful way, the pandemic helped the UK real estate market. COVID-19 triggered a boost in demand for country-side living, which, in turn, caused strong house price growth in small towns and villages across the UK.
What this means is that the UK real estate market now offers a rare advantage where investors can benefit from buying property in the city or the countryside and profit well from either one.
Green is the new black
The climate crisis has become increasingly prevalent in the last year and a bit. It is now one of the biggest global issues we face and will stay that way unless we do something to combat the crisis. JLL predicts that over the next five years, there will be a steady increase in demand for more energy-efficient, lower carbon sustainable homes, with the major UK banks already beginning to turn their attention to this anticipated growth in demand*.
As one of the UK’s leading real estate developers, Berkeley Group is proud to be an industry leader in the fight against the climate crisis and in building a sustainable future for all. A-rated for transparency and action on climate change, if you would like to learn more about Berkeley Group’s sustainability policy which is implemented across all of their projects.
Resilient real estate market
Over the last six or so years, the UK housing market has faced its toughest battles yet since the Global Financial Crisis. Brexit and the COVID-19 pandemic put a lot of strain on the UK economy.
However, as many other sectors and industries suffered as a result of these two occurrences, the UK real estate market held firm and came out the other side relatively unscathed. In fact, forecasts are looking better than ever, while current figures and statistics are breaking records.
A surge in foreign investment
It’s no secret that the UK, particularly major cities like London, are brimming with profitable opportunities. But since the onset of the COVID-19 pandemic and the resulting economic changes, such as the Stamp Duty holiday and record-low interest rates, savvy investors have seized the chance to take advantage of the situation.
This, of course, resulted in foreign investment into the UK property market that is showing no signs of slowing down anytime soon.
The population of the UK is rapidly increasing
Earlier, we mentioned the demand for housing is increasing in the UK. This is because the population of the country is rapidly increasing, with numbers expected to reach 74 million people in the next 20 years. And with all those people looking for places to rent or even buy, investors could be put in a good position to make a favourable return on investment.
Great investment opportunities available with Berkeley Group
The answer to your question is yes, property could certainly be a good investment in the UK. And if you’re in the market for some prime real estate to invest in, whether to diversify your portfolio or use a residence, then you’ve come to the right place.
Founded in 1976, Berkeley Group is one of the UK’s premier property developers and an FTSE 100 listed company that builds homes and neighbourhoods across London, Birmingham and the South of England. The company revives underused land and creates welcoming, sustainable and nature-rich places where communities can thrive and people of all ages and backgrounds can enjoy a great quality of life.
The award-winning developer has a passion for quality and design underpins everything that they do. All Berkeley Group homes are created with care, expertise and relentless attention to detail. With a strong focus on green living, Berkeley was awarded the Queen’s Award for Enterprise in Sustainable Development in the year 2014. All developments by Berkeley Group are built to enhance the communities in which they are designed through outstanding sustainability, landscaping, key design and sympathetic restoration.