UK house prices are always under the spotlight and in the headlines, but should they be the main focus for property investors?
UK house prices have grown faster than wages over the past 20 years, with numerous peaks and troughs along the way influenced by wider economic turbulence and acceleration.
Investing in property has become a staple way for many people looking to boost their wealth through a solid, tangible asset class that generally grows in value over time. Property investment is a common retirement plan, as well as a way of passing wealth onto future generations.
Flipping property also became a popular strategy during times when house prices were rapidly accelerating. This involves buying at a competitive price, renovating, and using the uplift in value as a way of turning a relatively fast profit upon sale of the property.
However, investors taking a more long-term view have benefited not only from rising house prices, but through the huge acceleration within the UK rental market over recent years as supply has struggled to keep up with tenant demand. Landlords’ yields have surged as a result, and this is a hugely important part of the puzzle for investors keen to maximise their returns.
House prices and investment
Investing in a location where house prices are affordable, yet experiencing the strongest growth, is a popular strategy during times of slower house price rises. But focusing on tenant demand and rental market performance is also hugely important, particularly in the current market, as investors will then achieve strong rental yields.
The latest house price index from Halifax revealed a stagnated picture in June, with house prices little changed from the previous month following a slight -0.3% fall in May.
Regionally, the picture is somewhat varied, and this can be key for property investors taking a strategic approach when focusing on house prices. In England, Halifax’s figures showed that the North West continues to experience the strongest rate of price inflation, with a 4.4% rise over the past year, significantly bucking the national trend.
The North West is a region that frequently appears among the most popular places for property investors. Its relative affordability coupled with strong house prices make it a particularly resilient region, while rental markets in some of the North West’s towns and cities have been booming.
London was once – and still is for some – a go-to destination for property investors. However, the capital has been experiencing subdued property price growth for some time as affordability has become more stretched. In Halifax’s index, prices rose by just 0.6%.
Focus on yields
For long-term property investors who let their properties out, returns are generated in two ways: through capital appreciation either on sale of the property or to be used as leverage to build a portfolio; and through rental yields providing a regular monthly income.
Rental yields have hit record-high levels recently thanks to continually high rates of tenant demand along with steadier house prices. In this way, slower house price growth can be a positive for investors looking to get a good price on their next investment.
Over the past year, according to Hargreaves Lansdown, house prices have risen at roughly half the pace of the most competitive easy access savings accounts. However, taking rental yields into account, as well as the long-term nature of property investment, many investors’ profits will have continued to outpace savings accounts.
The advice from Sarah Coles, head of personal finance at business consultancy Hargreaves Lansdown, is to “not push yourself to the brink and end up being forced to sell at a time when prices may not have risen enough to cover your costs.”
This is why focusing on locations and properties that can maximise rental yields alongside capital growth is one of the strongest strategies for investors in the current market.
