Property investment is a very popular asset class in the UK. It is a great opportunity to build long term returns.
Now to the important stuff!
Due to property investments being a popular asset class in the UK, the brilliant opportunity to build long term returns remains clear, and this is due to income that is contractually determined and secured within a lease for several years. Therefore, if you have a 5-year lease you have some assured income for the lease length (good security of tenure on your investment) .
However, in the UK it forecasts that we could see prices grow by 23.9% by 2025 (*source: Savills) investment remains to be a very reliable channel for maximising returns amidst low interest rates and incredible demand.
Buying a property at £100,000, a £75,000 Mortgage on it (75% LTV) only costs £925 per year. Assume it rents a 6% gross so £6,000 then after finance costs you are looking at £5,000 rental returns. The clients actual cash investment is only £25,000. So, the return on the cash invested is 5/25=20%, add a capital appreciation by 4.78% per year = 24.78 % combined return / gross return on cash! That figure compared to the other asset classes such as gold, the stock market etc….it is evident to see why property investment has outperformed other asset classes many times over the years.
It’s an outstandingly cheap debt.
What about mortgage rates?
Data from the Bank of England shows that mortgage interest rates have continued to fall, with the average 2-year fixed rate for a 75% loan-to-value (LTV) mortgage standing at 1.23% compared to 1.86% at the beginning of the year (and only marginally higher than its 60% loan-to-value equivalent).
In what has become a very competitive mortgage market, we have seen the costs of much higher loan-to -value mortgages fall even more significantly over the first six months of the year. The average quoted rate for a 2-year 85% LTV fixed mortgage has fallen from 3.02% to 1.99% over this period, with the costs of 90% LTV mortgage moving from 3.75% to 2.47%.
However, for many, it will be the ability to lock in low longer-term costs of money that draws greatest interest. In this respect, the cost of a 5-year 75% LTV fixed rate mortgage stood at new low of 1.40% at the end of August, down from 2.04% at the beginning of 2021.
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