One of the most developed nations of the world, the UK has long been recognised as a reassuringly stable property investment location. Despite bad times, many opportunities do still exist for real estate buyers willing to seek out the very best locations in which to invest.
Investor confidence in the UK is undoubtedly at a low ebb and many of the UK’s property buyers are today looking overseas in a bid to achieve an allegedly better lifestyle, buying into emerging economies and property markets that offer higher growth potential.
It’s true that real estate prices have rocketed, and then plummeted all over the UK, especially in London and Northern Ireland, but for those prepared to dig a little deeper than in former years, some profitable property investment choices can be made on home soil, particularly in high demand areas of Central and Greater London, the South East, the South West, the West Midlands and Scotland.
Shortage of supply is a major cause for concern in the UK, boding well for all those wishing to make long-term investments into England’s real estate market and benefit from rental yields and longer term growth in the meanwhile.
The new homes market is performing best of all, with central locations close to good transport links attracting the highest levels of interest. Buy-to-let investing has unsurprisingly set new records to accommodate those who are, for now, still unable to take a first step onto the UK property ladder
Although visitors don’t generally come to the United Kingdom for its climate, tourists flock here for a wide variety of other reasons, including rich history, cultural heritage and beautiful greenery. A vast array of arts, sights, shopping and a truly intoxicating variety of cultures continues to make the UK a top destination for tourists from across the globe. Tourist hotspots throughout the UK continue to be popular for property investors wishing to profit from hotels and holiday rentals.
As a member of the G8, the UK is a highly industrialised nation with the sixth largest GDP figures in the world. This translates into a stable economic environment requiring a strong sustaining supply of residential and commercial property. England’s economy is the largest of the four United Kingdom economies and 100 of the country’s 500 biggest enterprises are based in London.
The UK economy continues to grow and government figures forecast expansion of 2.5% this year. However, the volatility of the Stock and a drop in interest rates create uncertainty surrounding the financial markets that could potentially have an impact on growth if the situation persists. Today’s investors in property rely on the fact that demand is high for rental property and prices will inevitably rise in the longer term. By simply holding their investments, buyers expect good long term returns on investment.
A well developed mortgage system awaits investors in the UK; however, tighter lending conditions are today making it more difficult for some borrowers to secure the loans they hope for. First time buyers without the pre-requisite cash deposits to supplement the amount borrowed are finding it increasingly difficult to take a first step onto the UK property ladder.
Politically, the UK is as stable as any other European state, while, as a founder member of NATO and the UN, it plays an important role in international security. In June 2007 Gordon Brown took over from Tony Blair as leader of the Labour party. Major current issues concerning voters in England today are immigration, national defense, law and order and the National Health Service.
Despite Queen Elizabeth II being head of state, in practice the monarch has very little involvement in the running of England. There are three main political parties in the UK; the Labour Party (currently in government), the Conservative Party (the official Opposition party at the moment), and the Liberal Democrats. Each of the 650 regions (or constituencies) of the UK has its own Member of Parliament (MP) and, during elections they are elected in each constituency. The party gaining the greatest number of MPs takes overall charge and currently this is the Labour party.
The UK is famous for its temperate climate with plenty of year-round rainfall. It has easily recognised seasons and temperatures tend to be low, but they don’t generally fall below -5ºC in winter, rising to highs of 30ºC in summer. Temperatures can vary considerably day to day during each season. A marked difference in temperature is evident in northern England and Scotland when compared with the milder south – generally the further north you go, the cooler the temperatures you will experience. The highest temperature ever recorded in the UK was 38.5°C in August 2003, in Kent, southern England, while the Highlands of Scotland generally experience the coldest and severest of winter weather conditions. Average minimum temperatures in the UK are 2°C in January and February.
The UK is renowned the world over for its verdant countryside, spectacular gardens and seemingly endless meadows with grazing cows and sheep. Snow-capped mountains, moorlands, beaches and lakes are also firm favourites amongst visitors seeking the UK’s unadulterated and diverse scenery.
A charming and unique cultural heritage awaits buyers throughout the UK. The nation boasts a rich historical heritage and, despite high immigration figures, clings onto its very strong cultural identity. The UK abounds with monuments, interesting architecture, museums, traditional pubs, tea rooms and world-class theatre, cinema and music, making it a year-round destination for visitors from all corners of the globe
A well-developed property market and a huge range of both urban and rural property options to choose from mean property in the UK has something to offer most investors. Quality properties, from smart, trendy urban off-plan apartments in mini-emerging city markets, to rambling country properties suit all budgets and personal tastes.
Air travel to the UK is highly developed, with scheduled and budget airline services operating to and from the UK’s twenty eight international airports. For a full listing of airports you can arrive at, check out uktravelbureau.com.
Despite the fact that the cost of living in the UK is fairly high, travel to the country is relatively cheap, with budget flights to London Stansted, Gatwick, Heathrow and Luton always on offer, and last minute special deals and travel packages are plentiful. Be sure to check that the London airport you are flying into is the closest one to your actual destination, as it could be time consuming and costly to connect onwards.
It is worth shopping around to find the cheapest flights to England. With the internet now the favoured medium for flight bookings, you will find a wide range of travel deals and cheap flights at your fingertips. If you are looking for the best fares, it is advisable to book direct at any of the following web sites:
A well-maintained, modern road and transport infrastructure makes for easy access to your final destination.
If traveling from the Continent, Cross Channel Ferries and The Channel Tunnel provide easy access to the UK at London’s Waterloo Station in around three hours, with the convenience of traveling with your car.
For reservations and information on Eurostar, the cross Channel Tunnel train service from London to Paris, visit Eurostar.com.
Ferry operators connect the Continent, Northern Ireland and the rest of the UK and provide a popular and comfortable means of travel. Ferry operators include; Brittany Ferries, Condor Ferries, DFDS Seaways, Fjord Line, Irish Ferries, Minoan Lines, NorthLink Ferries, P&O Ferries, Sea France and Stena Line. These ferry lines provide services to Belgium, Denmark, France, Germany, Holland, Ireland, Isle of Man, Isle of Wight, Jersey, Norway, Spain, Sweden and the UK.
Despite today’s potentially volatile UK real estate investment climate, carefully selected off-plan property is still a viable option for many shrewd short-term investors.
Location has never been more important in the United Kingdom: successful investors are selecting up-and-coming areas of high demand, such as Central and Greater London, the South East, the South West, the West Midlands and Scotland.
Favourite off-plan buys are units in trendy city centre regeneration projects that are well connected by road, rail and air. Large companies are typically relocating to these modern, well-served locations where city such projects are underway to create highly attractive, business environments in previously neglected areas of town. These new developments bring with them new communities and an influx of residential and commercial buyers and renters, all looking for state-of-the art designs and modern living. Trendy young professionals seek to enter the property ladder with smart pads in the heart of the action, while living conveniently around the corner from their workplaces.
Tourists flock to the UK to enjoy a rich history, a varied cultural heritage and beautiful greenery. A vast array of arts, sights, shopping and a truly intoxicating culture continues to make the UK a top destination for tourists from across the globe.
For short-term investment, off-plan properties in carefully chosen locations in the UK offer strong potential. As anywhere in the world, off-plan prices must always be a good deal lower than prices in comparable completed developments – a situation that is easy to find in today’s buyer’s market. This gives full power to “flip” investment strategies in which capital investors sell on the unit prior to project completion. It’s important to ensure that the reassignment of contracts is permitted in the off-plan project you are interested in and under what terms. Sometimes, though not always, investors may be charged a percentage of the purchase price in order to do so.
Highly beneficial finance structures are generally in place and, depending upon the development, investors need pay only around 10% of the purchase price in the form of a deposit over the first year, while the rest is payable when and if they complete. This makes purchase an affordable option for many first time investors. In the case of selling on their contract prior to completion, investors will have made a relatively small capital outlay.
Investors in UK off-plan developments factor in between 18 and 24 months for construction from reservation to completion stages. Short term investors normally look to profit from a carefully selected, promising market, selling on their unit to mid or long term investors approximately 14 to18 months after making their initial reservation, regardless of whether or not the project is yet completed.
Payment terms will vary; good projects will often offer terms of 10% deposit with the balance payable upon completion, allowing short term investors to operate their strategy with minimum capital outlay. Of course, the earlier the investment is made, the greater the investment returns. As importantly by entering the project at the earliest possible stage, investors get the best choice of units which will always be first to attract buyers in the future.
Short term strategies offer the lowest level of complexity as the purchase has not yet been officially made; therefore, no property taxes or maintenance or management charges are due. This is a simple capital investment, often with no need to proceed to Purchase Contract, or make any mortgage finance arrangements. Remember to check with the developer if there are any charges made to “flip”, or reassign your contract, and at what stage you are permitted to do so, before you proceed
All investors must carefully assess the particular project and units in which they wish to invest. In many cases a wide range of other projects will be under construction and a choice will need to be made. A decision will need to be based on how a particular development or project will outshine its competitors in terms of appearance, location, on-site facilities and the unit itself. Investors will also need to consider issues such as the number of other units available within the particular development, predicted demand as well as competition for the type of property they wish to invest in.
To curb risk, a short-term investor should normally seek to buy the best possible unit, ie. a corner unit, a penthouse or ground floor unit with a private garden, which will always sell in preference to a standard first floor unit.
Investors need to be clear how their exit strategy is to run. How will the unit be marketed and by whom? How much will the selling agents charge in commission? Should a buyer not be found prior to completion of the property, investors must be confident they can cover payment to completion of the unit and adapt their strategy if necessary.
Short term “flip” investments are undoubtedly more risky than longer term strategies, but, with careful research and planning in place, off-plan purchase in well located UK projects offers a sound investment with lucrative returns.
For the purposes of short term return on investment, UK property today does not generally offer significant opportunity to profit from capital returns. In fact, the market favours the longer term investment strategy for capital appreciation over time, often boosted by rental income.
By reserving at pre-release stage, investors profit from discounted prices and, in many cases, these are subject to successful planning applications, allowing for additional pricing uplift. Reservations on this type of recommended project allow for full refunds if necessary and secure escrow accounts are in place to protect investors’ funds. An earlier than normal reservation of course affords the maximum possible returns on investment on any given project.
The short term investment strategy is purely based on capital outlay as mortgages cannot generally be raised against property that is not yet built. In order to cover all eventualities, investors MUST be confident they can complete the purchase if necessary, even if using a buy to flip strategy.
Purchasing a property and then re-selling prior to completion is a tax-efficient way to invest as it allows buyers in the UK to avoid any property transfer taxes and side-steps capital gains tax, should they choose to sell on the contract prior to project completion.
A huge shortfall in housing exists in The United Kingdom, particularly in Central and Greater London, the South East, the South West, the West Midlands and Scotland. Latest government figures confirm the number of households in England alone is expected to increase by 223,000 per annum, without taking immigration into account. As house construction projections currently show a rate of 200,000 units per annum, this reflects an ongoing shortfall to meet current demand for the foreseeable future.
Property prices have dropped considerably in the UK and lending criteria have tightened, excluding many first-time buyers and those without cash funds from the market. Buyers who can afford to pay up to 20% of the property value themselves, however, are benefitting from loans to fund some potentially lucrative long term investments.
The difficulty in raising finance, combined with poor short term growth performance are pushing many buyers away from purchasing UK property; however, this situation in turn creates longer term buy-to-let opportunities in high demand urban areas where people seek quality residential and commercial property to rent. The new homes market is currently performing best of all, in terms of sales as well as rentals, with central locations close to good transport links attracting the highest levels of interest.
Despite recent market uncertainty, for many, the UK offers a reassuringly stable investment climate, particularly for cautious investors wishing to sit back and watch their money grow over the years. Property prices historically rise for those prepared to wait and the UK now offers a suitable market in which to expect longer-term growth. Bought in areas where demand is high, UK property can produce good returns on investment, composed of a combination of capital appreciation and rental yields over time.
Average construction time on UK off-plan developments, from project sales release to completion of construction, is approximately one year. Mid to long term investors look to hold onto their units after construction, normally for at least 18 months from initial reservation, either to rent it out and/or benefit from capital appreciation upon eventual resale.
Many long term investors use city centre locations in the UK’s major towns to generate reliable rental income over a period of time. As rental yields alone will not generate fast profits, it is long term growth combined with rental yields that provide the main focus of their strategy.
In the case of off-plan purchase, full payment for the property needs to be completed at various stages of construction, prior to final completion of the purchase.
For mid to long term investors, all costs will be applicable, while ongoing costs such as maintenance, community fees and utility bills will also need to be factored into the strategy finance plan. Bear in mind it’s advisable to open a Sterling bank account in order to pay for the property’s utilities and other ongoing expenses.
Beneficial arrangements are often to be made with local property management and rental companies. These ensure that such ongoing costs are covered and that your unit is rented out regularly. Managed properly, maintaining a property abroad can become no more complex than an investment closer to home.
For off-plan purchases, typical reservation fees are around 1,000 GBP and between 3.0 – 5.0% deposit is then payable over the first six months (minus the reservation fee). The final balance is paid upon completion a year later.
A medium to long term investment strategy entails much lower financial risk than a short term plan which relies on finding a buyer within a very short time frame. Provided the right investment is made on a quality, well located project with multiple facilities, establishing a rental market and eventually a buyer for your investment should not be difficult. However, as with any investment, patience and money is sometimes required until the end user is found.
A high demand for accommodation in city centres is encouraging for buy-to-let investors. On the one hand this factor indicates a stable investment environment in which to buy or rent, but on the other it brings with it intensified competition. Investors need to be confident that their particular property is indeed likely to be in high demand in the future.
It is customary to carry out a structural survey prior to purchase of property in the UK. The depth of survey you contract of course depends on the age and type of property you are purchasing. It’s your responsibility as the buyer to be certain that the building is structurally sound as the seller has no legal obligation to declare or ensure that this is so.
Bank guarantees are commonly given by developers in the UK.
By appointing independent legal representation, the client can be sure that all the necessary paperwork is in place before signing the purchase contract.
Property ownership in the UK is mostly sold freehold, leaving no room for ownership disputes.
It is a well known fact that, for now, UK house prices in general are experiencing major downward pressure, in fact fetching on average 11% less than in 2007, according to the latest Halifax house price index. This brings with it long term investment opportunity for those wishing to purchase property at greatly reduced prices and, with Halifax reporting that average UK house prices fell by 2.5% in March 2008, the UK has become a buyer’s market. The biggest price falls have taken place in the West Midlands (-5.0%) and Wales (-4.7%). Price drops have also been prevalent in the South West (-2.6%), Northern Ireland (-1.5%), Yorkshire & the Humber (-0.5%) and the North West (-0.5%).
When considering UK property from a longer term perspective, some carefully selected, well-priced opportunities can offer potentially significant capital returns as part of a long term investment strategy. For example, according to the latest survey from the Department for Communities and Local Government (DCLG), Scotland offers opportunity in niche areas such as Dundee and Edinburgh, with annual capital growth reaching 6.9% in 2007. This compares well with 3.8% in England and 1.5% in Wales. Indeed, this year property in Scotland still defies national trends, with average prices actually having risen by 9.3%.
According to The Royal Institution of Chartered Surveyors (Rics), the English buy-to-let sector in general is seeing rents rise at a record pace with no signs of abating. Temporary economic uncertainty and bank interest rates at 5.25% have naturally created an ideal platform for buy-to-let investors to cash in on rising demand for rental property and increases in this sector were recorded at 3.8% in the year to July 2007.
As rental income is usually subject to long term leases, investors also enjoy a good level of guarantee. However it must be remembered that due to the current high cost of buy-to-let mortgages, rental yields are often negligible for those who borrow, while long term growth is the main aim of rental investors today.
The “Credit Crunch” has caused lenders to put a general squeeze on potential buyers, while the cost of new mortgages is rising and banks are now far less inclined to lend. Indeed, latest research by the Bank of England shows that first-time buyers are being priced out of the market, being generally unable to establish themselves on the property ladder. Sadly, it is this group that would normally benefit most from the current low property prices
However, those investors who can raise cash deposits (up to 20% of the purchase price) and satisfy new lending criteria are benefitting from a wide selection of mortgage opportunities to choose from.
The current need to raise cash to fund part of a UK purchase can be offset against the relatively inflated costs of purchasing property in other worldwide locations.
Lenders vary from banks, building societies or other specialist lenders. With the large variety of mortgage products currently available in England, you’ll be able to choose from a variety of mortgage options:
Variable rate mortgages - the interest rate you pay can vary over time. Every mortgage lender has a Standard Variable Rate (SVR) that is loosely based on rate established by the Bank of England (Bank Rate). Each lender’s SVR is usually 1% – 2% above the Bank Rate.
Fixed rate mortgages – these are very popular in the UK. As the name suggests, they allow you to fix the rate of interest you will pay on your mortgage for an agreed period. Most UK mortgage lenders offer a range of fixed rate mortgages. The most popular fixed rate mortgages are 2 year, 3 year and 5 year deals, but it’s possible to get a fixed rate mortgage for anything from 6 months to 25 years.
As a general rule, the longer the period of your fixed rate, the higher the interest rate you can expect to pay. However, as this market is so competitive, 2, 3 and 5 year deals are sometimes available at very similar interest rates, so it pays to shop around.
Capped rate mortgages – a mortgage similar to a fixed rate mortgage, in that there is a maximum interest rate set for a given period of time, and the rate you pay is guaranteed not to go above that rate for the agreed period. However, with a capped rate mortgage, should the Bank Rate fall during that period, the rate you pay for your mortgage will 'track' the interest rate downwards, reducing your mortgage repayments.
Tracker mortgages – these are similar to discount rate mortgages, but are arguably more transparent. With a discount mortgage, the lender offers you a set percentage from its own Standard Variable Rate (SVR). A tracker mortgage follows the Bank Rate set by the Bank of England charged at a defined margin, eg. if the Bank of England sets the Bank Rate at 5%, you might get a tracker mortgage at Bank Rate 1% = 6%.
Buying property to rent out privately is a hugely popular form of property investment in England the UK as a whole. In 2006, 10% of all mortgages taken out in the UK were buy-to-let mortgages.
Buy-to-let mortgages can make sound investments, but research is important as you will need to ascertain what buy-to-let mortgage types are available and what kind of renters to look for.
Due to today’s rocketing prices, many investors, particularly young couples, are struggling to take their first step onto the property ladder. Many mortgage lenders are therefore offering special packages, such as the “Share to Buy” mortgage, allowing up to four parties (normally a group of friends or family) to enter into a joint mortgage with reduced costs and this method is becoming increasingly popular in the UK as a whole.
Remortgage simply means switching your mortgage deal and/or mortgage lender. Remortgages are very popular, and with good reason: Whether you are switching your deal for a better remortgage rate, more suitable conditions, better service or increasing the size of your home loan, there are plenty of deals for remortgages available. Banks, building societies, specialist lenders and mortgage brokers will all accommodate your remortgage needs.
Thousands of people are asset rich but cash poor. If you have a substantial amount of money tied up in your main asset that you want to get your hands on, you could always sell up and buy a smaller home; however, many older people would rather not sell the family home. If you have property in your own country and would like to borrow against this in an equity release plan, we can introduce you to independent financial advisors who can help you raise the necessary finance.
Increasing numbers of older/retired people are turning to equity release mortgages to allow them to free up some of the value in their properties. As the population continues to get older, and property continues to increase in value, this trend is certain to continue.
Many off-plan developments offer installment plans over between 12 to 60 months. The charges applicable vary according to developer and repayments are usually indexed.
Tax is charged on rental income at up to 40%, dependant on your individual status.
Rental income, whether from all or part of your property, is regarded by the tax authorities as if you were running a rental business. As the “landlord” you will be taxed on the overall net profit made from rental income each year, after deducting any allowable property-related expenses.
For landlords who do not live in the UK for most of the time, but receive rental income from UK property, the arrangements to pay tax are different. For further information visit: Hmrc.gov.uk.
If you rent a room out in your own home, under the Rent a Room Scheme, a tax free ceiling of 4,250 GBP per year is allowed.
Depending on your income bracket, CGT is charged at 10%, 20% or 40% on the proceeds of a property sale, or the market value of a gift, less its original cost. This tax is payable by 31 January following the relevant tax year; however, if you are a non-resident of the UK, you may not be liable to pay CGT. As ever, there are some important exceptions (eg. gains in disposal of UK assets used to carry on a trade, profession or vocation in the UK).
Investors in commercial property can benefit from a potential 75% Capital Gains Tax exemption. This is achievable after owning a commercial property for just two years and a potential 50% exemption applies if you sell between one and two years after purchasing the property.
A hugely complex issue, VAT is subject to wide interpretation and your tax advisor will need to advise you on your particular obligations. VAT is charged on many of the costs relating to the purchase of your English property, eg. architects, estate agents, lawyers, surveyors, and is set at 17.5%.
VAT is not normally charged for the letting of residential accommodation and the VAT paid on costs relating to rental property is rarely recoverable.
VAT is charged on services relating to UK land regardless of the place in which the recipient resides for VAT purposes; the zero-rating available in respect of certain international services is not available where the services relate directly to UK land. Some associated services less directly connected with land (for example, accountancy fees) will usually be zero-rated.
As in most countries, it is important to plan in advance to avoid your beneficiaries paying inordinate amounts of tax upon inheritance. IHT is charged at 40% for property exceeding the value of £300,000. However, recent legislation has doubled the value of assets that couples can leave behind without incurring inheritance tax. Married couples and civil partners now have a combined threshold of £600,000, rising to £700,000 by 2010.
There are ways in which you can greatly reduce or abolish this tax:
Although Stamp Duty hasn’t yet reached the levels found elsewhere in Europe, it is nevertheless a significant cost when investing in UK property. As a general guide, duty is charged at the following rates:
The main form of local property taxation in England, Council Tax is charged on domestic property and is collected by the local authorities. Generally, the higher price, the greater the tax will be.
There are three circumstances when your council tax bill may be reduced:
Furnished second or holiday homes in England and Scotland will be liable for Council Tax but will enjoy a 10% - 50% discount because no one lives there on a permanent basis.
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