1. Undersupply
The UK housing market is in a constant state of undersupply. 340 000 new homes are required, annually, and the UK’s best year to date, yielded 270 000 new homes. This constant state of undersupply means that there’s a solid demand for property, whether to buy, or to rent.
2. Residential investment property price points
The optimum entry level price point for investment is upwards of £100 000. Anything under that and it’s problematic to get a mortgage (leverage), as a non-resident, as well as slightly less cost-effective when factoring in managing agent’s minimum monthly management fees, which are normally charged as a percentage of the rent level, unless the rent level falls below their minimum threshold, in which case a flat rate is often charged.
3. Mortgages
Typically, as a non-resident, the loan to value (percentage of purchase price level for mortgages) for non-residents would be around 60-65% of the price of the property, meaning that the balance would need to be cash. Interest rates range from around 4% to 5%. Mortgages are generally granted for periods of up to 25 years.
4. Rental Yields
Rental yields range anywhere from 3% gross to 12% gross, depending on things like the location, type of residential property, price paid, condition and rental demand, etc.
5. Capital appreciation
Capital appreciation on these properties ranges from 3% (closer to central London) up to around 10%+, once again, depending on similar factors that affect the rental yields, above.
6. Acquisition costs
Everyone purchasing UK residential investment property is required to pay certain acquisition costs. Those costs would include Stamp Duty Land Tax (SDLT), legal fees, and mortgage fees (in the event that a mortgage is being taken out). As a property investor, assuming that you own your home or any other property anywhere else in the world, when buying UK investment property, you’d pay a surcharge of 3% on the stamp duty (meaning that you’d add 3% to the typical bill that a non-investor would pay). For non-residents, there’s a further surcharge of 2% on the SDLT. Other costs would include things like a survey to check the condition of the property, generally ranging from £400 to £1200, as well as any potential sourcing agents’ costs, etc.
7. Types of tenure
There are 3 different types of tenure (ways in which property can be owned) in the UK, being:
7.1. Freehold
The party owns the bricks and mortar building, as well as the land upon which it is located, for an indefinite period of time;
7.2. Leasehold
The party owns the right to occupy the building (essentially owning the individual apartment/flat), but not the common property (passages, lift wells, reception, etc) or land upon which it’s located and this is for a defined period of time, i.e. typically 90 years to 999 years. This is a common property tenure in the UK, and the majority of apartments/flats are owned on this basis;
7.3. Leasehold with a share of freehold
The owner of an apartment/flat not only owns the apartment/flat, but a share of the common property in the building, as well as a share of the land on which it is located.
Most of the UK’s apartments and flats and owned on a leasehold basis and the banking sector is geared for this type of tenure, so finance is freely available, subject to criteria.
8. Monthly running costs
In the case of leasehold tenure, once you’ve acquired the property, the typical monthly running costs will include the following:
Water, electricity, gas (if applicable), service charges and ground rent (paid annually to the owner of the freehold) and Council Tax. Typically, a tenant would pay the utility bills, as well as the Council Tax and the Landlord would only be responsible for all charges, while the property is vacant.
In the case of freehold, the typical monthly running costs would be all the above, save for the ground rent and service charges.
9. Benefits of ownership of UK residential property
The benefits of owning UK residential property, include aspects such as:
9.1. Stable economy;
9.2. Strong currency;
9.3. Well-functioning legal system;
Historically, UK property values have doubled every 10 years or so, making it a great way to build and protect wealth, if done properly.
