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    BoE Base Rates, Historically Low

    Although interest rates are increasing, they are still at the lowest levels in history, meaning it will cost you less to borrow money in the long run. The lower sums of money you pour into repaying debts means you have additional money to spend elsewhere. The Bank of England (BoE) base rate is the official borrowing rate in the UK. During the pandemic, a time of heightened insecurity, the BoE dropped base rates to 0.1% – a record low. Subsequently, these low-interest rates attracted an influx of buyers to the market. However, over the past couple of months, interest rates have gradually crept to 1.25%. The BoE rates fluctuate following the property market. Despite the minor increase, current rates are appealing as opposed to the highest rate in history at 17% in 1979.

    The figures below show the change in the BoE base rates from February to June.

    Property a good investment, low BoE base rates
    • 17%

      Highest Rate, 1979
    • 0.5%

      February 2022
    • 1%

      May 2022
    • 1.25%

      June 2022

    What About Inflation?!

    Despite several dynamics climbing the upward trajectory, the property investment market is still hot! Although the cost of living, the interest base rates, and house prices are inflating, investing in the market now is still a wise choice, but only if you research before investing. If you wish to secure a buy-to-let investment, you need to act fast to secure a property at a reasonable price.

    Researching into available buy-to-let opportunities means you can predict if an investment will prove to be profitable. Firstly, you will need to list your property goals and define whether your objectives are short-term or long-term. Once you explore the opportunities available, you can weigh your options using the investment calculators available. The calculators illustrate your projected rental returns, stamp duty charges and mortgage repayments.

    Why You Should Take Advantage of Low Base Rates

    According to Savills, over 400 active lenders in the market, up from 240 in 2018. In addition, the number of non-bank property lenders is on the rise. Interestingly, banks now make up less than half of the active lenders in the UK. Borrowers can take advantage of the growing number of competitive deals in the market, with a greater choice of lenders than ever before.

    Take advantage of the low base rates! When purchasing a buy-to-let property, a 25% cash deposit is required. Therefore, you would need a 75% buy-to-let mortgage. Opting for the mortgage route means you only pay a fraction of the property value at the start. Therefore, by leveraging the lender’s money, you can profit from significant returns (if property prices rise), even after accounting for the interest and other additional fees. When the property appreciates, you will not just benefit from the money you have put into an asset but benefit from its entire worth. Therefore, generating four times the return in contrast to if you cashed out the property.

    Will I be able to Secure a Mortgage? 

    The market is witnessing unprecedented levels of cost inflation. As everything is becoming financeable, affordability may take a hit. So how do lenders decide whether to give you a loan? Lenders will assess your financial situation to see if you can afford potential repayments. Several factors are considered, including those listed below.

    • Cash flow. Do you have a stable and predictable income?
    • Credit history
    • Value of the property
    • Rental growth prospects. What is the potential rent of the property?

    What is Happening in the Market?

    Market activity remains robust. According to TwentyCi, in April, the number of sales agreed was 18% above pre-pandemic levels. Furthermore, completions were 13% higher than pre-covid levels in April.

    • The primary cause of this strengthened market activity and the growing number of loans approved is the chain-free position of landlords and first-time buyers.
    • The number of loans approved for first-time buyers in March was 16% higher than the average for 2017-19 (UK Finance).
    • On the other hand, 50% more buy-to-let loans were granted in March compared to the average before covid.

    Being in this position as a landlord or first-time buyer is beneficial because the client does not have to wait for anything to sell. Also, many first-time buyers and landlords are not precious about moving to a larger space, so they are happy to purchase the smaller properties available on the market.

    Property market

    Generation Rent

    Throughout the pandemic, we have gathered that the property investment market in the UK is the most lucrative and stable investment vehicle. 1.4 million property transactions took place in the last year. Accordingly, demand in the market is still outstripping supply as levels of housing supply remain 15% lower than the average. For this reason, there has been a rise in the number of tenants in the market. Rents have increased across the UK. Therefore, with every new tenancy, landlords raise their rents. As a result, many existing tenants are rolling their tenancy agreements on for longer to avoid paying higher rents.

    As Generation Rent continues to expand, vacant periods for properties should not be a concern for investors. The property market is full of tenants! Unsurprisingly, the population is growing, and more tenants will ultimately enter the market. By 2040, the UK population is forecast to reach 74 million!

    Is UK Property a Good Investment?

    CityRise Verdict

    Property market growth is unparalleled. Substantial house price growth is due to the scarcity of houses on the market. For the foreseeable future, this stable growth will persist. However, as the pressure on affordability intensifies, the market may slow down. So, property price growth will soften marginally, but it will not plunge.

    Despite concerns regarding the market crash, 2022 is on track to be another successful year for the property market. Undoubtedly, the property market has a solid foundation. The biggest advantage of investing in UK property is the capital appreciation across the regions. Those investing in prime investment locations can expect significant returns over the years.

    The housing supply and demand imbalance will not stabilise any time soon. According to the government, to meet the levels of housing demand, over 345,000 homes need to be constructed. As it stands, the new homes built are short of 100,000.

    If you are still sitting on the fence, waiting to see how the market will respond, you may miss the prime time to invest! Across certain regions, primarily the north, property prices are still affordable, and capital growth potential is exceptionally robust.

    So to summarise, purchasing property is a good investment.

    – Property prices are rising across the UK

    – Rents are on the rise, benefitting landlords

    – An increasing number of tenants in the market

    – The population continues to grow, which will influence two things:

    a) Housing demand, which will enhance competition in the market and drive prices on an upwards trajectory

    b) Population growth will result in increased rental demand

    -Benefit from your property investment in the short-term, with rental returns and in the long-term with capital growth.

    – Large-scale regeneration projects take place across the UK

    -Easy exit. In the future, if you wish to move away from property investment and want to take your money out, it will be easy to sell your property.

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