Residential property
In the UK, the individual's love affair with residential property is easy to understand. Over the
last few years, house prices have seen gains of 20% or more in some areas. With the decreasing
confidence in both state and employer-funded pension schemes, residential property investment is
regularly being used as a way to save for retirement.
In addition, because of personal experience of buying and owning a home, less experienced investors
feel property is a form of investment they can manage without much professional support. It often
seems easier to understand than the impenetrable acronyms and complexities of shares, funds and
pension plans.
Residential property investment can also appear a safer bet than the more volatile financial markets. After all, average house prices have fallen just four times in the past 50 years while, according to Nationwide, at the end of 2005 the FTSE 100 was 10% below its 1999 level and house prices were more than twice as high. (Do remember that pas performance is not a guide to future performance.)
Second, the Survey of English Housing indicates that the proportion of households under 30 buying with a mortgage fell from 40 to 36% between 2001 and 2005. Over the same period, the proportion renting privately rose from 33 to 40%.
Government analysis implies that, unless house building rates increase, just three in ten households will be able to afford to buy their own homes by 2026. Residential property investments are, however, often extremely susceptible to even relatively slight interest rate rises. In addition, buy-to-let strategies can be vulnerable to downturns in regional economies or even local government policies - eg school and hospital closures or council tax increases.
There are signs of residential buy-to-let strategies becoming more sophisticated, as individual investors seek out more reliable, long term returns. Examples of such an approach might include investment in student halls of residence, nursing homes or housing associations, although this type of investment is more usually approached through a collective investment fund.
Residential property investment can also appear a safer bet than the more volatile financial markets. After all, average house prices have fallen just four times in the past 50 years while, according to Nationwide, at the end of 2005 the FTSE 100 was 10% below its 1999 level and house prices were more than twice as high. (Do remember that pas performance is not a guide to future performance.)
Buy to let
For buy-to-let investors, demand for rented accommodation looks promising. First, the population in the UK continues to grow. According to Government statistics, in 1961 the estimated population was just under 53 million. The projected figure in 2006 is over 60 million, rising to 65 million by 2021.Second, the Survey of English Housing indicates that the proportion of households under 30 buying with a mortgage fell from 40 to 36% between 2001 and 2005. Over the same period, the proportion renting privately rose from 33 to 40%.
Government analysis implies that, unless house building rates increase, just three in ten households will be able to afford to buy their own homes by 2026. Residential property investments are, however, often extremely susceptible to even relatively slight interest rate rises. In addition, buy-to-let strategies can be vulnerable to downturns in regional economies or even local government policies - eg school and hospital closures or council tax increases.
There are signs of residential buy-to-let strategies becoming more sophisticated, as individual investors seek out more reliable, long term returns. Examples of such an approach might include investment in student halls of residence, nursing homes or housing associations, although this type of investment is more usually approached through a collective investment fund.
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For your information
Please note, the information contained on this website is only for your general information and use and is not intended to address your individual requirements. In particular, the information does not constitute any form of advice or recommendation by the group and is not intended to be relied upon by you in making (or refraining to make) any specific investment or other decisions, and also does not constitute any form or advice or recommendations to be passed on to any third parties. Appropriate expert independent advice, and/or independent research should be obtained before making any such decision.The value of investments and the income derived from them can go down as well as up, and you and/or any third parties you may be advising, may not necessarily get back the amount you/they invested. Past performance of an investment is not necessarily a guide to its future performance. It may be difficult for you or any clients you may be advising to sell or value certain investments or to obtain reliable information about their value or the extent of the risks to which they are exposed. The value of investments may rise or fall due to the volatility of world markets, interest rates and capital values or, for investments held in overseas markets, changes in the rate of exchange in the currency in which the investments are denominated.
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