For a long time, it’s been the received wisdom that investing capital into property is safe, profitable and financially astute. But does that still ring true in turbulent economic times where there are questions over the stability of the property market and rising interest rates?
In this short blog, The Gorvins property team examine the pros and cons, analysing all the variables before giving you the cold hard facts (and some unknowables). By the end, you’ll be in a better position to make an informed decision about your investment plans.
Falling house prices: Is it a buyer’s market?
2023 has seen a downward trend in house prices, with experts predicting a decrease of 5% to 10% over the course of the year. While a house price crash isn’t anticipated, this drop presents potential investors with opportunities to negotiate asking prices and acquire properties at below-market value. A decline in prices may make this year an opportune time to invest in property, but it’s crucial to have experienced legal advice to navigate contracts and ensure your investments are protected.
Rising Rents: The Yield Potential
On the flip side, rental prices are on an upward trajectory, with an average increase of 11% over the past year. This rent hike can potentially boost rental yield – the ratio of yearly rental income to the property’s value. With average national yields stated as ranging from 4% to 7%, and even up to 10% for large house shares, the current market could provide an attractive return on investment for potential landlords. However, it’s crucial to be aware of legal obligations and to protect yourself with solid tenancy agreements.
High Demand for Rental Properties
There’s strong demand for rental properties in 2023, driven by factors such as a robust labour market, increased immigration, and a rise in overseas students. This high demand, coupled with a relatively low increase in rental home supply, provides a fertile market for potential landlords. Yet, in such a fast-moving market, ensuring all transactions are legally sound is paramount.
The Challenges: Understanding Legal Obligations
While the current trends in property investment may seem promising, potential landlords should also consider the challenges. Recent changes in tax rules mean landlords can no longer deduct mortgage costs from their tax bill, potentially impacting profitability. Additionally, landlords are required to upgrade all rental homes to a minimum Energy Performance Certificate rating of C by 2028.
A further challenge is the forthcoming Renters Reform Bill. This legislation could complicate tenant eviction, making it vital for landlords to understand their legal rights and obligations. At Gorvins, we are well-versed in these regulatory changes and are prepared to offer our expert advice to potential landlords.
Rising Mortgage Rates: Financial Considerations
The Bank of England’s recent decision to raise mortgage rates in response to inflation makes property investment more expensive to finance. Therefore, it’s crucial to have a full understanding of your financial position before entering the buy-to-let market. If you are considering a buy-to-let mortgage, it’s essential to get legal advice to ensure that you fully understand the terms and potential impacts on your investment.
For many, a buy-to-let mortgage in the current environment would result in minimal or no rental yield in some markets. Mortgage rates are high and still rising, and because of certain changes to tax rules, the margins become much more challenging.
Cash buyers at an advantage
If you’re buying in cash, however, this issue falls by the wayside. The margins are much more favourable when you aren’t paying the current interest rates on a buy-to-let mortgage. With rents rising across the board, rental yields will be much more favourable for cash buyers.
Making an Informed Decision
While current market trends suggest potential opportunities for property investment, it’s crucial to remember that property is a long-term commitment requiring substantial capital. Before you decide to invest, ensure you understand all legal, financial, and market considerations.
As experts in property law, Gorvins is here to help you navigate the complexities of property investment. We can provide informed, up-to-date advice on contracts, lease agreements, and regulatory changes. Whether you’re a first-time landlord or an experienced investor, we’re here to support you in making the best decision for your circumstances.
Want to speak to one of our property law experts about your plans? Our expert legal team will go through all the risks and opportunities, offering peace of mind that whatever action you take is the best one for you.
Call us on 0161 930 5151, email us at enquiries@gorvins.com or fill out the online form.