Why property is still a solid investment in today’s economy
Jul 25, 2017
Following the Brexit vote, there has been some uncertainty in the property market which may have left some investors wondering whether it is the right time to invest in bricks and mortar to determine strong returns. Post Referendum it was reported by Rightmove that average asking prices dipped across the UK, particularly within Greater London. That prompted some analysts to question whether the market was about to stall, however, the property listings website added that the dip simply matched the typical seasonal drop-off in interest over the summer period. “The average fall in new seller asking prices at this time of year has been 1.2% over the last six years, so this month’s fall is exactly in line with the long-term average,” commented a Rightmove spokesperson, referring to the UK-wide market. The market has since recovered from the recent seasonal dip and prices are once again climbing steadily.
The Office for National Statistics released its July house price index which shows that prices across the entire UK have continued to rise this year following Brexit. If you’re an investor wondering where to put your money, just take a look at the typical house price which increased by 8.4% in the year to August 2016 according to official figures. In London, the same period equated to 12.1%.
In a wider context, the average growth in wages during that same period was just 2.4%. This shows that property is outperforming standard inflation. In July 2015 the average home was worth around £200,000, by July 2016 it had increased substantially to £217,000; £1,000 of that growth came after the Brexit referendum result was announced.
The Council of Mortgage Lenders states gross mortgage lending climbed to £22.5 billion in August, 7% up on the previous month. A spokesperson for the organisation suggested that sentiment is recovering thanks to the Bank of England’s monetary stimulus, low interest rates and the prospect of yet another cut to the historically low base rate in the near future.
What about the rental market?
Most investors will be looking at the potential for future capital growth, they will also have a close eye on the rental yield strength of a property. This figure provides an indication on the likely return on investment over years to come. HomeLet has analysed rental figures and discovered Greater London’s average rentals have climbed 2.5% in the 12 months to October. In October 2016 average rental values in London (£1,542) were 71.0% higher than the UK
(£902). Rental figures are predicted to continue due to rising demand for private rented properties far outstripping supply.
CEO Martin Totty of Homelet’s parent company, Baron Insurance Group, commented “the fundamental driver of growth is the balance between demand and supply for rented property, with an ongoing shortfall in the number of homes available.”
Mr Totty added: “It’s possible we may also see renewed interest in the London rental market as foreign investors seek to pick up investment property to make the most of the big exchange rate advantage following the fall in the pound.”
Not only is property investment looking a positive proposition in the long term, but potential rental income is also high.
Please note. The information in this article does not constitute financial advice or a recommendation to buy. No view is given as to the present or future value of property investment and investors should form their own view or consult an IFA