The UK property market offers lucrative investment opportunities, if you know where to look and what to analyse before making a purchase. With house prices forecast to rise steadily in 2023 amid high demand and low supply, there are profits to be made by investing in certain UK cities and property types.
However, the market faces challenges too. Rising interest rates, inflation and the cost-of-living crisis bring uncertainty. As such, carrying out due diligence is essential to make the right property investment choices this year. Here are the key factors to consider when investing in residential property across Britain in 2023.
Evaluate the Local Property Market Dynamics
Thoroughly research the property market conditions in any area you’re considering investing in. Look at current asking prices and rental yields, along with forecasts for house price growth. Focus your search on locations where demand is strong and outpacing supply. Cities like Manchester, Liverpool and Birmingham currently fit this profile and are tipped to deliver above-average returns.
Areas undergoing regeneration and infrastructure improvements are also worth targeting. Major transport projects, new business parks, university expansions and town centre upgrades can boost property prices. Always check planned developments and area investment when picking locations.
Assess Local Economic and Demographic Trends
The health of the local economy has a big impact on the housing market. Seek out cities and towns with diverse industry sectors, major employers, and qualified workforces. These indicators point to strong job and wage growth potential.
Growing populations in a city also fuel housing demand. Look for areas where populations and new households are rising faster than new property building. The imbalance pushes up rents and purchase prices. Monitor migration patterns, population projections, household formation rates and housing stock increases.
Choose Property Type Wisely
While buy-to-let flats remain popular, data shows houses have delivered greater long-term capital growth in recent years. Opt for traditionally sought-after properties like 2-3 bed terraced or semi-detached houses. Their appeal among tenants and buyers provides more options when the time comes to sell or let.
New-build homes help minimize maintenance and building condition risks. However, period properties in up-and-coming areas can represent solid investments too, if purchased below market value. Always factor in potential renovation and repair costs.
Do the Maths on Financing
Crunch the numbers! Project purchase costs, expected rent, mortgage payments, taxes, insurance, maintenance, and other expenses. This gives you a realistic idea of achievable rental income and yields. An annual yield of at least 5% on your investment outside London is a sensible minimum target.
Evaluate mortgage interest rates, loan terms, arrangement fees and LTV ratios from lenders. Understand how rising interest rates could impact affordability and cash flow. Having a substantial deposit to access better mortgage deals is advisable in the current climate.
Don’t Overpay Based on Emotions
Set a clear budget for how much you can afford to invest in a property. Don’t get emotionally attached and pay over the odds for a property you “fall in love with”. Overpaying cuts into your equity share and rental yields.
Running objective financial calculations is essential – don’t rely on “gut feel”. Be ready to walk away from deals that don’t make financial sense. Patience is key to find a property at the right price.
Factor in Costs for Improvements
Most investment properties require some renovation or cosmetic work, either immediately or within a few years. Budget for essential repairs or modernization to ensure the property remains attractive to tenants.
Leave some contingency funds for any structural issues or problems that crop up e.g. a replacement boiler. Ongoing maintenance costs also need consideration as a landlord. These upfront and recurring costs affect your bottom line.
Understand Tax Implications
Consult an accountant on tax obligations when buying, renting out and selling a rental property. Stamp duty, capital gains tax, income tax on rents and other levies apply. Being aware of these costs allows accurate projections of net yields and total taxes due.
Anticipate costs for accountancy services too. Using a letting agent also sees fees charged for finding tenants, collecting rents and property management. These professional services provide valuable help but impact profits.
Check Local Authority Rules
Rules and regulations vary across the UK’s cities, towns and districts. Check if you need a landlord license to operate in an area, which may require being assessed to be a “fit and proper” landlord. Some places impose added fees, safety certificates or minimum room sizes.
Knowing the local requirements determines any extra costs to factor in. And staying compliant means avoiding hefty fines. It also shows tenants you operate professionally.
Target Sustainable Tenants
Find out the profile of likely tenant types in the area – students, young professionals, families, low-income renters? Choosing a property suited to the target tenants boosts interest. These tenants should have the means to reliably pay the rents too.
A property near universities or offices will attract working tenants able to afford higher rents. Lower income areas put you at greater risk of arrears and vacancy periods. Do your homework on tenant demand.
Think Long Term
Ideally, property investment should be considered over a 5-10 year horizon, rather than a quick capital gain. Areas with solid housing demand fundamentals are less likely to see prices dip in the short term. The aim is finding an asset to appreciate in value and generate ongoing rental income.
Remember due diligence also continues once you’re invested. Managing tenants properly, staying informed of local developments and making improvements where required leads to the best returns. Patience and prudence pays off.
Conclusion
While UK property investment comes with risks like rising interest rates and recession worries, significant opportunities exist by targeting the right locations and property types. Taking a prudent approach, conducting thorough due diligence, buying at a sensible price and managing properties professionally will stand you in good stead. Considering the array of factors covered here will help you make calculated decisions to achieve your investment goals in 2023.
www.cubixproperty.com