When it comes to UK property, 2022 looks like it will be the best year yet. The market is in better health than ever and has proven itself to be a reliable prospect once again. Despite unprecedented disruptions over the last 18 months, rents are at record highs and projected growth in house price values is extremely high.
However, there are many misconceptions about property investment which may give a false negative impression of the market. Here, we take on 10 of the most common property investment myths and provide the answers you are looking for.
1.) Prime city centre markets are oversupplied
When a city grows fast enough there are always going to be concerns about whether the market is oversupplied, and therefore whether there are still the same reliable profits to be made. As with much about property investment, this concern can be explored through doing research.
Take Manchester as a case study. The city has become the UK’s property investment hotspot in recent years, and it is fair to wonder whether it has peaked. However, the underlying factors that led to its success have not gone anywhere – in many cases, the conditions are even more favourable now than ever before.
For example, Manchester’s population growth is actually speeding up, and at the same time its pace of delivering new homes is slowing down. The latest Deloitte Crane Survey highlights the speed of construction in Manchester, noting that last year saw 5,000 residential units complete in the city, with another 12,000 currently under construction.
However, at the same time, the latest forecasts from the Office for National Statistics and Manchester City Council show that the city’s population is expected to grow by more than 70,000 over the next five years. This means that the current shortfalls are only going to get worse – and the record rents seen in 2021 will continue to be a feature and not a bug.
Learn more about the undersupplied Manchester market by clicking here
2.) Buying off-plan before construction finishes is risky
Buying ‘off-plan’ means purchasing a property before construction is complete. This naturally comes with some risks, but by finding the right location and developer, you can avoid them easily.
My choosing a developer with a reliable track record of completing their buildings and delivering strong, profitable investments, you should not have to worry too much about buying before the building is finished. Any reputable sales agent will be able to give you a full history of the developer, as well as providing case studies and testimonials from previous investors.
Likewise, you can remove the concern over future rental demand once the property is complete by choosing an up-and-coming area carefully. A good example of this is Preston which is at the beginning of an investment boom and has a severe lack of luxury accommodation in the city centre. Long term forecasts for Preston are positive and show no signs of downturn in the future – making it a perfect example of an area where buying off-plan can lead to reliable, substantial profits.
3.) Buying completed properties is more profitable
Buying completed properties is the other option from buying off-plan. The attractions of buying a completed, working investment are clear and obvious. What easier way to start earning immediately than to buy a property which already has a tenant?
While that is true, buying completed property often comes with other issues. For one, it is normally more expensive than buying off-plan properties which can often be secured at a below-market rate and will often deliver a large sum of capital appreciation on completion.
Secondly, many existing properties come with maintenance and repairs that need to be carried out immediately, adding an instant cash operating cost onto the investment which will cut into your rental yield. Similarly, an existing property may not be up to modern energy-efficiency standards or have the appropriate safety certificates – all of which can require further remedial works.
4.) You need lots of money to invest in property
This is only the case if you are buying in cash and intend to pay for your property in one go. Otherwise, it is perfectly possible to get involved in property investment with a much smaller sum that acts as the deposit.
Once you have paid that, you can get a mortgage to purchase the rest of the property and pay that back over time either by using your monthly rental income or any other regular income. On the surface, it might seem like property has a high barrier to entry – but in reality, the market is much more welcoming and there are avenues in for people who do not wish to invest so much up front.
5.) Capital growth is the most important thing
Capital growth is one of the biggest advantages of investing in UK property. The market is growing positively, and people investing in cities like Manchester can secure huge annual gains thanks to its booming market.
However, this is not the only income you can count on. Monthly, passive rental income can be just as important in your planning as capital growth. Indeed, it is this regular monthly income which should form the basis of your long-term planning, and this is especially the case if you are investing to fund your retirement or replace any other form of regular income.
Ronald Garrett, Managing Director at Alliance Investments, says: “While capital appreciation is an important part of investing, we would urge you to look at rental returns as another, equally important income stream. When looking for the perfect market to invest in, the best properties will offer strong growth in both forms of revenue.”
6.) It’s risky to invest in the current economic climate
The current economic climate is a risk for some forms of investments like stocks and shares or traditional savings accounts, but property has foundations which have not only insulated it from any turbulence, but allowed the sector to thrive.
Underneath the success of UK property as an investment class is the simple fact that there are not enough homes to go around, and that demand is higher than it has ever been. It is estimated by the UK government that as many as 345,000 new homes are needed a year to meet demand, but in reality, 100,000 fewer than that are actually delivered to market annually. This leaves a major shortfall, and city centre markets in particular are suffering in this way – which is great news from an investors point of view, and minimises the risk of investing in the current economic climate.
7.) It’s hard to sell my property and exit the market in future
No, selling an investment property is just as easy as selling any other kind of property. In fact, the aforementioned lack of available homes has pushed demand to new heights and ensures that any property in a good location will be inundated with people wanting to buy it when you come to sell.
You will have to pay Capital Gains Tax on any profits you make from the sale compared to the original purchase price but, again, that is no different to selling any property. The investment market is incredibly strong right now, making it easy to exist the market in future if you need to.
8.) Being a landlord is hard work
There are many tasks which come with being a landlord. Everything from marketing, conducting viewings, maintenance, paperwork, key handover, inspections and much more need to be taken care of. For many, this is a heavy burden which adds a huge amount of work from day to day, especially for overseas investors who cannot be present.
Luckily, this is easily solved through the appointment of a lettings and management agent who will take care of all of the work in exchange for a small fee which represents a percentage of the monthly rental income.
Nadia Aghtarafi, Lettings Manager at Alliance City Living, says: “There is a lot of work to do on a daily basis to make sure that a tenant is completely satisfied in your property, and it is understandable why many landlords might find it overwhelming to consider and carry out. However, by hiring a local lettings and property management expert, you can enjoy all the benefits of being a landlord with none of these downsides.”
9.) Mortgage rate rises in 2022 will make property less profitable
Despite the Bank of England retaining a 0.1% base rate of interest in November 2021, many are speculating that mortgage rates might rise across the board next year. If this occurs, it will increase repayment costs slightly, and many investors are concerned as to how this will affect their profitability.
However, it is worth remembering that rates are at a historic low right now, and any increases will be minor. Even the mortgage providers who are already raising rates slightly are keeping them at levels which are far below rates we have seen in the past 10-15 years.
Overall, there is no reason for investors to be worried by the potential for increases over the current UK mortgage rates in 2022. In fact, many buyers will see advantages, particularly those buying with cash or who are in a position to remortgage existing properties right now.
Regardless, the profits on offer far outweigh any minor rate increases that may occur. This is the ideal time to invest and take advantage of extremely good circumstances for investors.
To learn more about what mortgage rate increases mean for investors, click here
10.) I can’t get a mortgage if I invest from overseas
It is perfectly possible for overseas investors to get a mortgage in the UK which can be used to fund their buy to let investment, and the process for doing so is simple. While lending criteria can vary, the prospect of investing in UK property with a mortgage should not be off-putting. Overseas investors can be confident in the market, and your mortgage advisor can find the right product to suit your specific needs.
Your affordability criteria will be judged on the projected rental income rather than your individual earnings or limited company income. Typically, monthly rental payments will need to be between 125% and 145% of the monthly interest repayments in order to meet the criteria and qualify you for the mortgage.
If you require assistance with securing a mortgage as an overseas investor, our team can help by recommending an expert in this area.
The Manchester property market is in an extremely interesting place and there is good news across the board – from unprecedented rental growth and extraordinary levels of demand, to impressive office space uptake which promises even more economic growth to come during 2022. To learn more, please view our recent video update below:
Despite the many property investment myths, 2022 promises to be another fantastic year for investors looking at the UK. The market is booming, supply is still far away from meeting demand, and property investment remains one of the most profitable and reliable prospects in the world. Get in touch with our team today to learn about our available opportunities and find your next investment today. Click here for more information
