Join CityClub Today to Receive:
Currently, market activity has slowed down compared to the record-breaking heights of the pandemic year. Right now, the market is back to levels seen before the pandemic. While property prices have continued to grow, with a 0.9% increase in January, sellers are currently selling at market value. Whereas in the past couple of years, sellers had been able to sell their property above market value, due to the competitive market.
For investors, low competition could allow them to secure property below market value. This means they could benefit from immediate capital appreciation. Furthermore, the low competition allows investors an opportunity to take a more careful and cautious approach to each opportunity, avoiding a bidding war or a race to complete. This means that the investor may be able to get a great property in a top location for below-market value. As the market normalises, competition will grow, and sellers will be able to command higher prices for their properties.
As inflation rises in the UK, the Bank of England’s base interest rate has hit 4.25%. This means buyers on a tracker mortgage could be paying as much as 5.75% interest on their mortgage. Therefore, this has been enough to drive reluctant buyers away from the market. However, private lenders are still offering competitive rates for buy-to-let investors as it is often seen as more risk-averse for lenders. This is because buy-to-let mortgages require a 25% deposit, and the investor is likely to be recuperating costs by renting out the property.
If an investor is using a tracker rate, they can remortgage at a lower rate once inflation reduces. According to Bloomberg, UK inflation will drop to just above 2% by the end of 2023. Once this happens, the Bank of England inflation rate should follow shortly. When the interest rates have reduced, many properties will start to sell above market value once again, as reluctant investors begin to build their portfolios.
Right now, property prices are climbing by around 1% per month, signalling strength in the market. This is a positive sign for investors, as in many locations, they are still able to gain capital appreciation over the next 12 months. However, the level of growth which was seen in the past couple of years is now unlikely to return anytime soon, as demand was surged to accommodate new lifestyles.
Property is a long-term investment and always has been, so any anomalies in the market cannot be considered a sustained success. The past two years have been incredibly fruitful for investors; however, this level of growth should be seen as an acceleration, caused by record-high demand. Now, investors are able to obtain property far easier and will see sustained growth, as was forecast for 2023 and beyond.
Investors should currently be looking for the top investment hotspots in the UK. In some areas, property prices are lower and therefore investors can sustain a profit while paying higher interest rates. However, in areas like London where property prices are incredibly high already, the investor can struggle to maintain a profit while charging competitive rents. Therefore, an investor would have to charge higher rental prices, which would make it very difficult to obtain tenants.
In areas such as Manchester, Liverpool and Leeds, property prices are around half the price, but the rental markets are in high demand. This means the rental property is incredibly high yielding. This allows investors to have some room to adjust prices according to demand and gives them higher returns, meaning if repayments are temporarily higher, the landlord can still make a profit.
Now is a great time to invest in property and build a portfolio. As competition is low property is available at a lower price. This means with the right investment strategy investors can achieve a strong return on investment. A strong strategy includes finding the top investment hotspot which needs to be at a good price with strong tenant demand. If landlords can command higher rents with incomings high enough to offset the slightly inflated interest fees.
Best Cities in Yorkshire for Property Investment
We have already established Yorkshire as a prime investment spot for property with fantastic capital growth potential. From its skilled sectors and...
House Prices 2024 | UK Property Market Outlook
In Zoopla’s UK property market outlook, house prices in 2024 will continue to drop to adjust to mortgage rates. However, if mortgage rates...
Best Rental Yields UK
Rental yields help investors decide whether a property is profitable. It is calculated as a percentage and is determined by the cost of the property...
Why Invest in Yorkshire Property?
Yorkshire offers more than just idyllic countryside. It has seen substantial growth in recent years and has become one of the most sought-after...