With house price growth starting to slow and interest rates going up, you may be wondering if property is a wise investment choice in the current environment. Maeve Ward offers her thoughts
Property investment remains an incredibly attractive option for those looking to get a substantial return on their money.
The last couple of years have seen incredible increases in the value of property across the country – the latest house price index from the Office for National Statistics said homes had jumped by £32,000 on average in the last 12 months.
However, investors may have been given pause for thought by the most recent Halifax house price index, which reported the first month-on-month drop seen since 2021.
What does slowing house price growth mean for property investors?
Yet rather than making landlords overly cautious, if house prices do continue to stabilise it should make them more confident.
After all, it reduces the chances that they are overpaying for a decent property, with prices being pushed excessively high due to the underlying shortage of homes compared to demand from buyers.
For example, data from Propertymark shows that while the average estate agent has 26 properties available for sale, they also had almost 80 new buyers register in June.
Given interest rates have already risen sharply this year, with further increases likely, moving now – when prices are settling, and before the cost of borrowing rises further – makes a lot of sense.
Where’s the best place invest in property?
Working out where to invest is a big consideration for all would-be property investors. After all, the housing market is markedly different in the various regions of the UK, attracting not only varied levels of demand from tenants but different types of tenants too.
For example, London will always have some appeal for tenants, but with house prices so high there may be little room for capital growth over the long term.
By contrast, other areas have much lower house prices, offering investors the chance to not only enjoy a healthy rental income but also the potential to benefit from increasing property values.
However, it’s worth bearing in mind that the area in which you choose to invest will impact the number of mortgage options open to you.
For example, if you want to invest in Northern Ireland, then you may have fewer mortgage deals from which to choose since not all lenders operate in the region. There are still options though, including Mercantile, so don’t despair.
How to search for the right property investment
For most people looking to purchase a property, whether as a home or an investment, property portals like Rightmove and Zoopla will be the first port of call.
However, the increased visibility that these portals offer to properties can mean a stronger level of competition, pushing the price up beyond the levels you are comfortable paying.
That’s why it’s important for investors to look beyond those portals and find other ways of identifying great prospective purchases. Auctions are a great example of a way to do this.
The properties on offer at auctions are often in need of some love, a creative eye in order to bring them up to their potential, which is why they can prove so useful for investors rather than those hoping to purchase a home in which to live themselves.
However, they can offer the potential to deliver a fantastic return to investors, irrespective of their exit plan.
Some will look to do the property up, refinance and then let it out over the long-term as an ongoing buy-to-let investment. However, others will look to sell on for a profit once those refurbishment works are completed, devoting some of the profits towards their next investment project.
Property investment pitfalls you may have to navigate
Landlords have also had to deal with regularly-changing rules over the last few years, like the introduction of the stamp duty surcharge and the stripping back of tax reliefs.
There’s another challenge ahead too in the form of energy efficiency requirements. Currently a property can be let out so long as it has at least an E rating on its energy performance certificate (EPC), but this is increasing to a minimum of a C for new tenancies from 2025.
This will test some landlords, looking to get their existing portfolios up to scratch. But it will also focus minds when landlords look to purchase new properties, increasing the appeal of those already with a high rating, or which can easily be brought up to that level.
Maeve Ward is commercial director at Mercantile Trust
