The uncertainty of the UK's economic stability is now becoming an increasingly prominent factor for those operating in the real estate market, despite this, over 50% of property investors are looking to further expand their portfolio in 2023.
Stephen Clark, from Finbri, says: "Just over 50% of all property investors plan to invest in 2023. 33% of investors aren't planning to invest, whilst 16% aren't sure. However, 68% of more experienced investors with over 5 investment properties, do plan to capitalise on increased opportunities in 2023.
“These findings demonstrate that those with a vast property portfolio are more likely to capitalise on the increasing availability of property as less experienced investors look to sell.”
There is likely to be an increase in investment property availability as 23.07% of investors with less than 5 properties have said that increasing interest rates would cause them to sell their properties. While the market is predicting a tough year ahead, this survey has identified that 67.92% of experienced property investors are planning to further invest.
What advantages does property investment provide?
As over half of UK property investors are looking to expand their portfolios in 2023, many benefits would have been considered to determine if this would be worthwhile - a few of these benefits include:
Capital appreciation: Property prices are predicted to drop by 5-10% in 2023 - and with many homeowners struggling to obtain a mortgage and repossessions on the rise, the increasing number of properties available on the market will be a prime opportunity for investors to expand their property portfolio. As the economic situation improves prices are expected to increase, by 2% in 2024 and 4% in 2026.
Additional income: With rental demand on the rise, tenants are often willing to pay a premium for good quality properties in desirable locations. Experienced investors will be able to take advantage, hoping to achieve high yields (the amount of rent as a proportion of the property value). The average rental yield in the UK is 4.71%, but this varies from location to location and researching where the highest yields are will provide investors with a strong indication with where they should be looking to expand their portfolio.
However, there are some potential risks to be aware of:
Mortgage rates: As mortgage rates are hitting their highest levels since the financial crisis in 2008, a quarter of property investors have said they would struggle to remortgage or refinance if interest rates rise sharply. The increasing rates are a growing concern with investors with many banks expected to tighten mortgage lending for UK property.
Competition: However, it is possible that the property investment market could become more competitive as more people look to buy. With increased competition, investment property prices could increase.
Where are the investment hotspots?
Locations that have undergone considerable rehabilitation, such as Slough, often have a robust housing market with favourable capital growth rates and high rental demand. Some of the favourable investment hotspots include:
1. Slough: Located about an hour west of London with access via the M25 and M4, Slough is great for commuters. Redevelopment is ongoing and is home to big businesses such as Samsung and Microsoft. The average house price in Slough is around £375,117, with a typical rental yield of 3.7% - with a predicted growth rate of about 10%.
2. Liverpool: Named 3rd best city in the UK for property investment returns (behind Manchester and London). An ideal residential area with a thriving population and strong demand for rental property, student accommodation, short-lets and homes for professionals. The average house price in Liverpool is around £202,242, with a typical rental yield of 5.48% - with a predicted growth rate of about 18.9%.
3. Aberdeen: Home to a thriving energy industry, including a strong presence of oil and gas mega-companies such as Shell and Chevron. Prices are predicted to stay low in Aberdeen for a while, however, they have grown 1.4% recently and are expected to increase further. The key to investing in property in Aberdeen right now is to get in early before prices increase further. The average house price in Aberdeen is £197,738, with a typical rental yield of 4.6% - with a predicted growth rate of about 10%.
4. Burton: With a population of over 72,000, the market town of Burton has a good property market. Burton is considered to have a high level of potential based on yield and capital growth possibilities. The average house price in Burton is £204,104, with a typical rental yield of 3.7% - with a predicted growth rate of about 10%.
5. Bolton: An up-and-coming location, Bolton is a location hotspot in Greater Manchester. As a growing cultural setting with a growing population (currently around 280,000, but expected to grow to over 300,000 over the next 20 years), there’s set to be growing demand over the forthcoming years. The average house price in Bolton is £375,117, with a typical rental yield of 8% - with a predicted growth rate of about 22.3%.
6. Reading: A pro-business town that’s ideally situated for commuters to London. The new Elizabeth line has further increased the excellent transportation infrastructure. Home to 174,000 with many affluent people, Reading has been named the most prosperous area in the UK outside of London. A great investment location. The average house price in Reading is £439,629, with a typical rental yield of 3.16% - with a predicted growth rate of about 7.57%.
While looking at the developing areas that are considered hotspots for property investment, determining the exact location has a significant impact on rental yields. Typically, rental properties in close proximity tend to command higher yields of 5.2% whereas other properties only achieve 3.9%. Experienced developers will be better suited to identifying the locations expected to yield high returns, and understanding the appropriate times to invest in the real estate market.
Property investment can be a great way to diversify your portfolio and generate additional income, but it's important to do your research to discover which locations are better for investment. Keep an eye on interest rates, as they are expected to rise over the next few years, and be aware of developments in the market that could make it more competitive.