Property investment has long formed the backbone of many investors’ portfolios. The tangible nature of the asset is appealing as a counter to the daily swings of equity investment, as is the flexibility of how returns on property are realised.
However, the recent boom in UK house prices, fuelled by the Government’s cut in Stamp Duty rates, has led analysts to speculate that a crash may be on the way. With such turbulence in the property market, investors are wondering whether long-term gains are still possible through UK property investment. The answer? Absolutely.
Supply versus demand
The effect of the Stamp Duty cut illustrates the dramatic result of demand for property outstripping supply. Whilst peak demand may fall again once Stamp Duty rates return to normal at the beginning of October, future projections show that supply will continue to lag behind requirements. This disparity will continue to drive prices up and, with no indications that supply levels will increase, we can expect to see a sustained escalation in property value.
All of this is excellent news for property investors in the UK market. From 2021 to the end of 2025, the estate agent Savills predicts an average increase in residential property value across the UK of 21.5%.
As one of the most exclusive property markets in the world, the Prime Central London market has long appealed to wealthy investors across the globe and their interest is now returning. However, it is the Midlands and North of England that are predicted to experience the most impressive growth, with greater capacity to inflate before hitting affordability ceilings. Savills foresees expansion of up to 28%.
The earlier investors join the market, the better they can expect to do. With progressively higher buy-ins required and returns tapering further down the line, those looking to maximise profits should act sooner rather than later.
The rental market
The rental market continues to expand, with renting now cheaper than buying in terms of monthly payments. Thanks to the UK economy having made a more robust recovery than anticipated by some early forecasts, predictions of a 9.5% growth in rental prices by 2025 now appear more than sustainable.
In the long term, demand for rental properties will dwarf supply. Indeed, it is anticipated that renters will outnumber landholders by 2039. According to residential capital investor analysts, this represents potential for rental profits of over £1 trillion for savvy property investors.
What does this mean for property investment?
Investors frustrated by low interest rates who are looking for a more potent return on their wealth should consider that the property market remains an effective vehicle for reliable returns. In a housing and rental market scenario where demand is not being met by supply in the short or long term, there is significant scope for successful investment opportunities to be enjoyed - particularly for those who act promptly.
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