For a strong property investment strategy, timing can be everything. While many investors are biding their time, patiently awaiting the return of mortgage interest rates to 4-5% in the distant future, a more lucrative approach may be investing this year, if you look at the numbers closely. Keep reading and we'll unveil five compelling reasons why you should consider making that property investment today, instead of leaving your capital idling in a savings account or postponing your plans until 2026. We'll shed light on the potential returns awaiting those who take action today, compared to those who opt for a delayed approach.
In the UK, as a trend, the value of property consistently grows over the years. A decade ago the average house price stood at £167,716 and it now sits at £268,489. Even if there has been political and economic flux along the way, there has been an overall increase in property values. Property has always been seen as a long term ‘safe-haven’ for investment, so if you choose to sell your investment down the line, you will benefit from the incremental jump in prices. Rental income is of course another benefit of buy-to-let property, and even in times of high interest rates will offset the cost of mortgages and other outgoings.
According to The Times, interest rates from saving accounts demonstrably underperform inflation rates, whilst The Guardian shows that property values continue to increase alongside inflation. Consequently, the capital growth of your property will rise as inflation occurs. In turn, the return on investment over time from the property asset class would be much higher than the interest from a savings account.
Utilising a mortgage to acquire the capital for your investment gives you the opportunity to only invest a fraction of the total cost yourself. Here, you benefit from the potential capital appreciation of a property for which you did not front the entire cost. In the context of buy-to-let property investment, your rental income can effectively underwrite your mortgage payments, providing guardrails for the repayment of your mortgage. To learn more about obtaining a buy-to-let mortgage, see how GG Mortgage can fund your investment.
In addition to the overall capital growth of your property, the buy-to-let property asset class provides the advantage of an additional stream of income. The rental income derived from your initial investment acts as a form of passive income. As a result, this can be strategically leveraged to continue growing your property portfolio.
In the UK, the demand for rental properties is robust, particularly in major cities. Investing in a buy-to-let property means that your investment will be supplying a very present demand which will ensure return on your investment. This substantial market demand is another factor that underscores property as a secure investment.
Let’s take a look at the numbers to determine what the capital benefits are of investing in property now compared to investing when interest rates decrease. According to Capital Economics, rates are going to return to 4-5% by 2026. Keeping this in mind, considering a 2 year fixed rate is currently around 6.5%, and using a £200,000 property as an example, we can determine what your return on investment would be if you invested now compared to investing in 2026 when rates decline.
Due to the discount achievable as a result of an uncertain market, you could purchase a £200,000 property for £180,000. A 25% deposit would be £45,000, and with an LTV of 75% your mortgage would be £135,000. At an interest rate of 6.5%, your mortgage payments would be £8,775 annually.
If you had a 6% yield from rental income, you would make £12,000 annually. After taking into account mortgage payments, this would be £3,225. Adding capital growth to this - which is on average 3% - you would have an income of £9,225 annually. Over the two years until 2026, this would add up to £18,450. After accounting for the £20,000 discount as equity, your total income as a result of the investment would be £38,450 by the end of 2026.
If you kept your £50,000 deposit in the bank for two years until investing in 2026, at an interest rate of 1% you would make £1,000 over the years. If you then bought a £200,000 property in 2026 you would not be able to benefit from a discount due to it being a stable buoyant market. With a 75% LTV, your mortgage would then be £150,000, at an interest rate of 4.5% your mortgage payments £6,750 annually.
Considering a 6% yield from rental income, you would still make £12,000 annually. After mortgage payments this would be £5,250. Including a 3% annual capital growth of £6,000 and the £1,000 interest, your return on investment would come to £12,250 by the end of 2026.
By investing now, even with the higher interest rates, you would be making £25,000 more by the end of 2026 than if you waited until interest rates dropped. Why wait? Start your property investment journey now and book in a call with one of our property consultants to see how we can help.