How to be a property investor: our national love affair with property
Brits have long had a love affair with bricks and mortar with house prices the traditional staple subject of dinner party talk across the country.
Generations are brought up being told by everyone from their parents to the Government that getting on the property ladder should be one of their life goals. A raft of TV programmes has shown us how we can find our dream home or make money from property.
Those that fail to splash out or cash in are seen as simply missing out – both on a secure home and property’s money making potential.
Kate Faulkner, property expert and founder of propertychecklists.co.uk, says: “We have a love for property in the UK which I guess is down to the importance of a 'safe haven' space which we make our homes into and more recently a feeling of financial security, especially for those who have done well from the roof over their heads.”
The official figures show exactly how buying property has led to financial security for previous generations. According to the Land Registry, which records paid prices, the average UK home sold for £189,901 in April 2016. Twenty years ago the average UK property cost just £57,000.
Few other countries share the great dream of home ownership. It’s normal to rent in France and Germany, for example, with mortgages not widely available and tenants benefitting from both rent controls and long-term tenancies.
These days we’re no longer content to own just one property – many people want to be landlords too. When you look at the figures, it’s easy to see why. Put simply, property has delivered massive returns compared to other asset classes.
A report by mortgage lender Paragon found that every £1,000 invested in buy-to-let in 1996 had generated a £12,000 profit by 2014. These returns outstripped every other type of investment over the same 18-year period. The annual rate of return of 16.3% a year was down to a combination of increasing house prices and rising rents.
And it’s not just in the long-term that property makes money. The latest buy-to-let index from property crowdfunding site Property Partner shows returns from residential property outstripped those from shares, bonds and cash over the 12 months to the end of March 2016. Landlords made an average return of 9.6% over the period while the FTSE fell 3.9%.
Almost every expert projection predicts house prices will continue to rise. Prof Paul Cheshire, professor of economic geography at the London School of Economics, reckons house prices will rise 23% by 2020. Meanwhile the Office for Budget Responsibility has projected a 26.4% rise in house prices by 2021.
With these statistics in mind it’s no wonder LendInvest CEO Christian Faes believes property is reliable as an asset class: “It’s reliable, it’s easier to understand than stocks and shares; it’s something tangible; and it’s something that historically almost always delivers,” he says, “Added to that, culturally we place a lot of significance and emotional attachment to the idea of owning property; we are a nation of landowners and aspiring landowners, traditionally.”
Looking forward, it’s unlikely that our love affair with property will come to an end any time soon.
- The second part in our series looks at how property has performed over the years. Many people have benefitted from soaring property prices. We’ll look at the factors that affect the property market and ask "Where could property prices go from here?"
Office for Budget Responsibility
Formed in May 2010, the OBR makes an independent assessment of the public finances and the economy, the public sector balance sheet and the long-term sustainability of the public finances. The OBR has four man priorities: to produce two forecasts a year for the economy and public finances, to judge the progress the government has made towards meetings its fiscal targets, to assess the long-term sustainability of the public finances and to scrutinise the Treasury’s costing of Budget measures.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.