The recent Brexit vote may have been a bit of shock to markets, with the pound taking a 10% hit against the dollar, but it may prove to be a golden opportunity for many property investors. As the UK government is forced to renegotiate trade deals with more than 40 countries, uncertainty is set to dominate markets for the next couple of years.
Uncertainty usually spells trouble for investors, with traditional sectors such as the real estate market suffering the most. To highlight this, real estate investment trusts (REITs) make up three of the 10 biggest fallers on the FTSE 100 since the referendum result.
At first glance, this may seem like a bad time to be investing in the UK property market; but for smart investors, this presents an opportunity to buy UK property at more reasonable prices. So let’s look at five reasons why now is a great time to be investing in UK property.
The average house price in the UK is £226,756 according to the Land Registry. That translated to $327,208 before Brexit, but with the pound falling to record lows against the dollar to around $1.30, the average UK home now costs much less, with an average saving of around $32,500. That means US-based property investors can snap up UK-based property at more than a 10% discount.
This is also good news for UK investors because the influx of new buyers will help keep property prices buoyant. In London, the UK city most affected by Brexit, property prices are holding firm and indeed some areas saw prices strengthen in the early part of 2018.
Property prices in the rest of the UK are set to fall by around 1% this year. This may not sound like a lot, but housing shortages have pushed house prices to record highs over the last decade or so. Since March 2009, house prices have rocketed by around 40%, so any fall in prices is a great opportunity for investors to buy at discounted prices.
It’s not just house prices that are showing good value; commercial property is also weakening due to market uncertainty. Research from Standard Life shows that UK commercial real estate values fell by 3% following the referendum, but the fall has since stopped and is now even showing signs of recovery. That means now is a great time to buy commercial real estate at a discount.
A shortage of good quality housing stock is keeping rental yields high, despite a fall in the value of the underlying property. A recent LandBay survey shows that average rents in the UK were £1230 during January 2018; a climb of 0.60% over the previous 12 months. High yields are great for property investors, and with new housing stock continuing to fall short of demand, this trend looks set to continue for the foreseeable future.
Despite a recent interest rate rise, mortgage rates in the UK remain near record lows. According to Moneyfacts, the average rate for a two-year fixed rate buy-to-let mortgage is just 2.84%. That is a little higher than the record low of 2.42% achieved for the same deal in August 2016, but it means borrowing money is still relatively cheap, especially when you are buying property at a discount. Investors would be advised to lock in rates now using a fixed rate scheme, however, to protect themselves from further interest rate rises in the future.
So as you can see, falling prices, combined with rental yields that remain strong and a positive long-term outlook for the UK property market, now is as good a time as any to get in on the action.
