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Is property still a good investment?

21 January 2022
Mark Friend
Property Owners, Building & Construction, Property Investors & Developers

Owning your own property is part of the culture in the UK with over 65.1% of houses owned by the households in 2019. Surprisingly, whilst we are ahead of countries like Germany and France, most European countries have extremely high levels of ownership (Italy 72.3%, Greece 75.4%, Poland 84.2%).

So why the disparity? In simple terms the reason is the property rental market. In 2020 the share of households occupied by private renters hit 18.7%, so around 4.44 million households were privately rented in England in 2020.

This number has increased substantially since 2000 when just 10% were owned by private renters, and whilst numbers have dropped recently this is one area we still see a lot of our clients moving into.

So what is the attraction?

There are two fundamental reasons why rental property is desirable.

The growth in value of property

Average property prices across the UK have risen by 78% (£96,979) since 2000, according to Ocean Finance. Comparing this to the stock market – from 2000 to 2021 the FTSE100 increased from 6223 to 7385 – just 18.7%. Whilst outside of the FTSE 100 big gains are possible you have to be a fairly sophisticated investor to consistently get great growth from equity investment. Whilst property isn’t 100% fool proof (you can still buy a dud) invariably most property will rise in value irrespective of location.

According to Rightmove properties in Medway had an overall average price of £309,422 over the last year. In 2002 the average house price in Medway was just £94,513. This is an increase of over 200%!

The majority of property sales in Medway during the last year were terraced properties, selling for an average price of £256,158.

Overall, sold prices in Medway over the last year were 7% up on the previous year and 12% up on the 2019 peak of £276,967.

Rental income

Whilst rental returns have naturally reduced over recent years due to the rise in property prices there still remains a positive yield (rent divided by property value).

Figures from the Market Rent Summary show that the average rent in the Medway area is currently £864 PCM. Typical yields are around 4%.

After the letting agent’s commission, house insurance, repairs there isn’t usually a lot leftover but with bank interest rates so low for many this remains an attractive investment, particularly with the prospect of growth in the value of the property.

Tax changes

The huge growth in value for properties, whilst great for property owners, is bad news for those trying to get on to the property ladder. In 2000 a new house would typically be 3.5 times the first time buyers’ earnings. This has now risen to a staggering 6.5 times earnings for the UK on average with this figure at 11 times earnings in London! This has led to affordability becoming an increasing political issue, with house prices in London and the South East being stoked by increasing numbers of property investors competing with first time buyers.

The government has introduced a range of taxes aimed at hitting the property investor. The restriction on mortgage interest relief for individuals and increased stamp duty for second properties being the main weapons.

Getting the right tax advice to minimise your tax exposure is crucial. Two key elements to consider are the family unit (is your partner utilising their personal allowances and basic rate tax band or could your adult children be involved?) and whether a corporate structure may be appropriate.

Commercial properties

Another consideration could be whether to invest in commercial properties rather than residential.

One huge advantage for commercial landlords is that the mortgage interest relief restriction only applies to residential properties and not commercial so that whatever level of income you have you will always get full tax relief for the interest charged.

In addition the yield on commercial properties is generally significantly greater than residential properties and with the growth in the UK economy demand for commercial properties is high.

Also with commercial properties you can get the tenant to look after the upkeep of the property with a tenant’s full repairing and insuring lease. The risk therefore diminishes as you will probably be able to tie your tenant into a lease for several years with guarantees on payment and in the knowledge that the repair and insurance costs are covered.

There can be complications such as VAT but in general these are fairly straight forward- i.e. if you buy a commercial property with VAT you may have to “opt to tax” which means you will have to be VAT registered and opt to tax the property to ensure no VAT is charged on purchase. You will however need to charge VAT on rentals.  If VAT is being charged on the commercial property purchase then you should seek professional advice. Please note no VAT is charged on residential property sales.

Increasingly we are seeing a number of high net worth clients moving more towards commercial property investment or high end residential lettings including HMOs for student letting, blocks of flats etc..

Legal requirements

Finally just a brief note on legal requirements. In a future blog we are going to list some of the must dos when you buy a residential property. Key amongst these are the legal dos:

There are also other obligations if you own HMOs, blocks of flats etc…

In many ways getting a professional letting agent to assist you with the rentals is essential. Typically agents will charge between 9% to 15% + VAT of the gross rentals received to manage your properties. Finding the time to manage your property portfolio can be very time consuming and onerous particularly if you are new to property investment.


Is property investment a good idea?

We think it is. If you are fans of Robert Kiyosaki (author of Rich Dad Poor Dad) or have read many of the other books on how to create wealth you will understand that property investment is a great way to generate passive income – earning money whilst you sleep! There are always risks of course (bad tenants, bad property purchases, over stretching on finance, failure to consider the tax implications) but fundamentally property investment has historically been for many a great investment.

If you are a property investor or considering property investment and are looking for a property accountant then please contact us to discuss how we can help you grow your property empire.

The content in this blog is correct as at 21 January 2022 See terms and conditions.

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