Is now the perfect time to invest in property? It’s a question that comes up time and time again, especially when the market is experiencing a climate similar to what we’re seeing today.
Recent external factors such as interest rates, uncertainty and affordability have certainly played a part in turning people away from investment but the truth is, many rental markets across the UK have never been stronger.
As always, whether now is the right time to invest largely depends on your individual circumstances, your finances and your aversion to risk.
With that in mind, we’re examining the market and exploring whether now is the perfect time to invest in property.
Does the UK property market still support investment?
As you might imagine, UK investment is largely dictated by sentiment and trends. During 2022 and 2023, many investors were unsure of whether the UK market would support an investment, especially with so much uncertainty around the economy. Now however – following a decisive victory in a general election – and positive forecasts regarding property prices, are more people moving to invest?
Firstly, we need to examine demand. Demand is the lifeblood of an investment and largely dictates the potential for success.
According to the NimbleFins ‘English Housing Survey’, over one third of households (35%) rent their home, translating to around 8,601,000 people.
Out of these eight million, 53% are privately renting with a landlord, with the rest either renting social housing or through a housing association. Now consider that in 2000, only 10% of homes in England were privately rented.
We’ve seen a significant increase in the number of people privately renting and for good reason. Homes are expensive, affordability is stretched and in some cases, people are choosing to rent over buying because of the benefits it provides.
This matches up with another point from the same survey – around 74% of 16 – 24 years olds in the UK are privately renting, typically graduates or young professionals needing somewhere to live but unable to buy.
Even if we move up a cohort, the majority (39%) of people aged 25 – 34 are renting in the UK and 67% of landlords have reported an increase in tenant demand, demonstrating just how strong this appetite for quality rental accommodation really is.
But what’s in it for investors, especially with the relatively restrained property performance we’ve seen recently? Consider that the average price of UK rent is forecast to rise 17.6% between 2023 and 2028 according to Uswitch. This alone is a huge increase, without even taking into account capital growth and current rental yields in certain markets.
Is now the perfect time to invest in property?
So, off the back of a landslide election victory that is bringing certainty back to the market – plus the ongoing success of the rental market – is now the perfect time to invest in property?
Depending on your own circumstances and the location you’re considering for investment, the answer is most likely yes.
If we take Birmingham as an example, here’s why a property investment might be the ideal asset.
Firstly, research by Paragon Bank suggests that around 42% of West Midlands landlords experienced a significant increase in tenant demand last year. This highlights that even from a first-hand perspective, the demand is there.
Next, consider that over the last year, the average Birmingham rental yield has increased from 5.5% to 6.9%. This is a huge increase over such a short period and far ahead of what a Birmingham property investment was achieving just five years ago.
Similarly, at the time of writing, the average rent in Birmingham is £1,076 – a 7% increase on the same period last year. This is not just an example of the potential ROI for investors but a sign of where the market is heading.
It’s true that transactions and supply dropped severely between 2022 and now, mostly driven by uncertainty and external economic factors. However, consider that tenant demand has remained the same and many experts are suggesting a reversal of fortune for house prices over the next six months.
For investors, this represents a small window of opportunity to jump back into the market while it’s still affordable. After the unrestrained boom of the pandemic, property prices have largely corrected to around £203,848 in Birmingham, a relatively accessible figure when compared to other traditionally popular investment spots.
So what is the best property to invest in?
While the location and type of property you invest in is largely dictated by your individual circumstances, we can’t help but shout about Birmingham. As one of the strongest rental markets right now, it’s a clear example of a trend that is occurring across the wider UK.
Firstly, let’s take a look at the various property types available in the city and what they’re achieving:
According to our data, the following properties are achieving the following yields:
Studio: 9.3%
1 Bed Apartment: 7%
2 Bed Apartment: 6.4%
3 Bed Apartment: 5.6%
2 Bed House: 5.7%
3 Bed House: 5.8%
These are all exceptional yields for a property to achieve, especially if you’re building consistent income and mitigating void periods.
It’s important to note that the majority of properties let in Birmingham were apartments, reinforcing the type of appetite we’re witnessing in the market.
According to Dataloft, 32% of renters were aged between 25 and 29, suggesting that the average age is a little higher in the city centre and points to more established professionals.
That said, achieving anything close to 6% or above on a £200,000 property is fantastic and a great way to start building out a high-performing portfolio, especially when the average UK yield is 5.6%.
But what about investing for capital growth? Fortunately, Birmingham property has that too.
With the average property currently costing around £203,848, it’s significantly more affordable than London and actually more accessible than places such as Manchester and Nottingham.
That said, Birmingham has been a growth leader over the last decade and property prices have increased by 52% during that time.
Now, with a decisive general election win bringing more certainty back to the market, it’s expected prices will begin to rise once more – Statista suggests property will increase in value 2.7% year-on-year by 2028.
So is now the perfect time to invest in property? Provided you’re doing all of the necessary research, investing within your means and consulting financial experts beforehand, signs suggest it could be. The market is starting to pick up after several bumpy years and there’s no denying the potential of a ‘post-election’ bounce that has historically driven market growth.
