Economic Factors In The United Kingdom
Below we identify some of the economic factors that make the UK a potentially strong investment arena.
A Distressed Market
The UK’s distressed property sales market is proving ideal for investors looking to buy up residential and commercial properties at greatly reduced prices. Chosen in high demand locations, these properties are offering solid rental opportunities, combined with potential for long term capital growth. “Give away” prices are now available in both the off-plan and re-sales markets, allowing investors to make the most of the opportunity to buy at the lowest possible pricing levels.
Bought in areas where demand is high, UK property can produce returns on investment, be it at far lower levels than in recent years. In 2007, annual capital growth in Scotland was 6.9%, compared with 3.8% in England and 1.5% in Wales, according to the latest survey from the Department for Communities and Local Government (DCLG). House prices in Northern Ireland are currently collapsing almost five times faster than in the rest of the UK. This, of course creates opportunity for those investors wishing to buy low, rent, and wait for capital growth to accumulate in the long term.
The UK economy has of course slowed down sharply but government figures still indicate that annual growth is expected to reach a predicted average of 2.5% in 2009.
Buy-to-let purchases in the UK offer potentially strong and stable medium to long-term investments due to greatly reduced property prices and the fact that many people, unable to pay current mortgage rates, now seek to rent property instead. In 2008, UK rental yields averaged 6.4% per annum, offering steady income to add to capital growth upon eventual resale.
The Royal Institution of Chartered Surveyors (Rics) has said that the English buy-to-let sector in general is seeing rents rise at a record pace, with levels of rent received also set to break new records in the coming months. Rental income is usually subject to long term leases which provide a level of guarantee for investors seeking a reliable market in which to operate.
"Pure investment" strategies are viable options in many areas of the UK, enabling you to purchase off-plan property at the lowest possible prices. Investors purchasing as early as possible with a minimum "money-down" payment and then selling prior to completion are gaining substantial profits from both residential and commercial properties in the UK.
As a member of the G8, the UK is a highly industrialised economic nation with the sixth largest GDP figures in the world. The United Kingdom is the third most populated state in the European Union and, despite an economic slowdown, there is high demand for commercial and residential real estate, particularly in rental markets.
The City of London has long been recognised as one of the world's leading financial centres and new statistics have confirmed that the rest of London is now following suit. PricewaterhouseCoopers (PwC) has predicted that by 2020 London will overtake Paris and Chicago to become the fourth largest economy among world cities.
Availability of Lending Products
3,000 mortgage products make the UK an easy investment option for many buyers who satisfy the currently stringent lending criteria. Despite a reduction in the number of mortgages being approved, lending figures for October 2007 totaled £18.9 billion, up 6% on the previous month. This year, the figure remains healthy, however, partly due to a large amount of re-mortgaging facilities now being approved.
Poorly Performing Shares
Worried by the volatility of share markets from the turn of this century, many investors have moved out of the equity market to balance their portfolios in property. Traditionally, real estate has been regarded as a safe investment as values are generally less volatile than shares. Rental income is usually subject to long term leases which also provides a level of guarantee, and is now more predictable than dividend income from shares.
It is widely believed that foreigners will help keep house prices up, especially at the top-end of the market in London. 2007 saw record levels of transactions from overseas investors, who accounted for almost 43% of total property purchases.
Latest figures from the government show the number of households in England alone
is expected to increase by 223,000 per annum, without taking immigration figures into consideration. Current house building projections show a rate of 200,000 units per annum, indicating a clear shortfall to meet demand in several highly populated areas of the nation.
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