The United Kingdom’s real estate market is booming despite constraints due to the ongoing pandemic. According to Hamptons, a UK real estate company, the first quarter of 2021 saw the rental property market increasing by at least 5%.
Robust residential market performance is driven by the continuing rise in demand, especially for residential rental properties. This is a good sign for one of the UK’s main economic drivers. The property market is estimated to be valued at an impressive GBP£7.39 trillion pre-pandemic.
The current undersupply presents an opportunity for investors looking to have their properties rented out. Discover the reasons why you need to consider investing in the UK residential buy-to-let (BTL) market.
How Do You Earn From a Buy-To-Let Property?
There are many ways to earn from real estate investing. In a buy-to-let setup, your tenant’s monthly rent should cover your mortgage fees, plus charges for repairs and other costs. And, when a property is strategically chosen, it’s likely to appreciate in value after a few years—so you can sell it at a higher cost.
As an investment method that draws in a reasonable income, some 26% of landlords surveyed by insurance broker Simply Business in the UK revealed they’re planning to sell at least one buy-to-let property in the future. You can check out Thirlmere Deacon for more investment tips and opportunities in the UK.
Are you still wondering why you should invest in the UK residential buy-to-let market? Here are a few compelling reasons:
1. The UK’s Residential Buy-To-Let Market is Projected to Grow
According to the comparison website Finder.com, more than GBP £36 billion was borrowed to fund buy-to-let mortgages from 2018 to 2019. There are up to 4.5 million people residing in BTL properties in the UK during the same period.
In 2020, property site Rightmove reported a 22% spike in demand for lettings, compared to the year prior to the pandemic. Because of the flexibility it provides, rentals are such a hit to long-term accommodation seekers in the UK. It’s estimated that there are some 125 million households renting out residential properties in this part of the world. Approximations also reveal that the private rented sector is set to increase by 24% this year, based on research done by real estate company, Knight Frank.
2. Rental Rates are Expected to Rise
Housing deficiencies may not be addressed soon. This glaring undersupply of residential properties, whether for sale or for renting out, is considered the main trigger for the increasing value of the residential buy-to-let market.
As housing prices in the UK continue to rise, so are the number of individuals and families who have decided to rent instead of purchase a home. This means the UK’s residential buy-to-let market is expected to reflect this movement.
A 2020 UK property market forecast estimates an average rental price increase of 11.5% until 2024 in the UK’s South East section. In addition, Birmingham City’s rental rates could climb to 12.5% from 2020 to 2023, according to the prediction by the same investment firm.
3. UK House Prices Show No Signs of Lowering
Despite the pandemic, residential properties in the UK have recorded an average surge of 8.5% in 2020, according to the Office for National Statistics. The agency attributes the increase to purchases done in relation to the stamp duty holiday in Wales and England. This tax incentive is expected to close in June 2021 but its effect may extend for two more months. This means rates won’t return to normal until around September 2021.
Skyrocketing house prices means more and more people are opting to avail of rental properties for affordability.
4. The Stamp Duty Holiday
This type of economic relief was enforced in July 2020, a few months after the COVID-19 pandemic. It’s expected to end in March 2021, but petitions have pushed for its extension to October 2021.
Because of this incentive, property buyers had the opportunity to lower property purchases by up to GBP£15,000. This has, in part, resulted in a sharp increase in property selling in 2020.
Investors should take this opportunity to purchase residential buy-to-let properties to further drive the UK market. Under the tax break, all property purchases below GBP £500,000 are exempted from stamp duty land tax (SDLT), although the 3% additional property rate is still in effect.
5. More People Tend to Favor Renting Over Owning a Home
Industry estimates reveal that UK renters will outpace homeowners in 2039. As such, it’s likely to further drive growth for the BTL market, currently estimated to be over GBP £1 trillion in value.
Four out of ten millennials aged 30 are still renting out privately, according to the Resolution Foundation. In addition, about a third of the UK population is projected to be letting a property for several years. For these reasons, it’s less likely that a property for rent will remain unoccupied for long periods, as the demand is expected to intensify.
Investors with enough money to spare should consider the UK’s residential buy-to-let market. While the upfront cost may be relatively high, you’ll enjoy a steady market and continually increasing rental rates.
As one of the UK’s main economic drivers, the property market is expected to be prioritized by the current and succeeding governments, thus making the sector beneficial to both tenants and owners alike.
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