With UK inflation on the rise, regular interest rate hikes, and questions around house prices, many investors (both existing and would-be) are wondering whether UK buy-to-let remains a worthwhile investment.
At GetGround, we believe it is. Here’s five reasons why:
Whether you’re planning for retirement, or simply keen to make your money work harder, an investment in buy-to-let can be a great regular source of income for years to come. The average UK rental yield is about 3.6%, but in some places can hit double figures. That means there are still impressive rental returns to be found in the UK market. What’s more, VeriSmart analysis predicts that renters will outnumber homeowners by 2039 in the UK. So buy-to-let investment doesn’t just have the potential for short-term income – it looks set to offer regular returns in the long-term, too.
At the same time as regular returns, buy-to-let investments also benefit from capital growth – the potential for your property’s value to increase over time.
In the past five years, UK properties have increased at over 5% annually. Seeing as the average landlord owns a buy-to-let investment for roughly eight years, that’s a considerable chunk of capital growth when you come to sell.
Property isn’t like any other asset, because it’s a basic need. In difficult economic environments, people still need a roof over their heads, which means demand from renters tends to remain high. And, with the cost of living rising, many are delaying their intent to purchase a home themselves. This only further increases the demand for high-quality rental properties.
This brings us back to the point around stable income. Rent is always due, regardless of a recession, which makes buy-to-let investments a relatively stable and predictable earner even during the tougher times.
In fact, looking to past recessions, buy-to-let has often weathered them particularly well. Consider the recession that followed the financial crash in 2008, for example. After just two years of decline, UK buy-to-let had rebounded and recovered its value.
This kind of stability and downside protection is fairly unique to property – other asset classes, like stocks or bonds, tend to be much more volatile.
The UK needs about 300,000 new homes each year, just to meet demand. But the latest data suggests that supply rarely tops 200,000 – especially since the Covid 19 pandemic. In fact, in the year to December 2021, just 175,000 houses were built.
Such undersupply means that there’s huge demand for rental properties, making it more likely you’ll fill a buy-to-let investment quickly, and keep untenanted periods to a minimum. High demand also means UK rents are rising – in the year to July 2022, they rose 3.2%.
This level of demand also means landlords are getting their properties tenanted quickly. In fact, Hamptons estimates the average time-to-let today at just under nine days – the lowest it’s been since they began recording data in 2013. This means landlords and investors can start enjoying rental income quickly.
The UK is headed for its highest rate of inflation in decades – with some predicting rates of over 18% by early 2023. There are a few reasons why buy-to-let investments can be great hedges against high inflation.
Firstly, property prices tend to rise with inflation. ONS Housing data shows that UK property tends to appreciate by about 3-5% every year. And of course, you get your rental income on top of this, too.
Which brings us onto another point – rental income also rises with inflation. In some areas of Manchester, for example, rents are up by about 20% in the past year. In London, rents are 15.8% higher than last year on average.
And lastly, your mortgage will depreciate in value over time. Inflation essentially means that £1,000 today is worth less than £1,000 last year. So, if your monthly mortgage payment is £1,000 on a long-term, fixed-rate mortgage, the value of that payment will decrease in real terms – especially in high inflation periods.
All this adds up to make buy-to-let a robust asset during high-inflation periods. This explains why, in our 2022 inflation survey, just 2.5% of landlords plan to divest all their property. Meanwhile, almost half plan to invest in new property because of rising inflation.
With so many assets out there for you to choose from, it’s always worth investigating whether UK buy-to-let is right for you. But, as you can see, there’s a good chance a high-yield, high-quality property will continue to act as a great investment for years to come – even during times of high inflation.
The key to it all is finding a property that matches your goals, your budget, and your circumstances. At GetGround, we can help with that.
This is for your information only – you shouldn't view this as legal advice, tax advice, investment advice, or any advice at all. While we've tried to make sure this information is accurate and up to date, things can change, so it shouldn't be viewed as totally comprehensive. GetGround always recommends you seek out independent advice before making any investment decisions.