Why property is still a good investment today

The result of the Brexit vote has led to some uncertainty recently within the UK, but that uncertainty seems to have barely impacted the country’s property wealth.

The post-Brexit dip in housing enquiries appears to have been seasonal, matching a traditional decline in interest over the summer[1] and since then interest in property has recovered.

Below we explore the current housing market within the UK, and look at just why now is still  a great time to buy property.

House prices

The most recent figures from the Office for National Statistics (ONS) reveal that house prices are continuing to climb strongly this year. In fact the typical house price increased by 8.3% in the 12 months to July, which is almost 3.5 times the average wage growth in the UK of 2.4%[1].

The average home was worth £217,000 in July 2016, compared to £200,000 in July 2015. In just 12 months the average UK property has climbed in value by £17,000. In fact, it’s £1,000 higher than the 12 months leading up to June, when the referendum result was announced.

And where will prices go next? The Royal Institution of Chartered Surveyors (RICS), one of the few bodies to make predictions about what to expect, surveyed its members and found they expect prices to keep on rising.

They predict a rise of 3.3% on average for the next five years. If they are right then the house worth £217,000 today will be worth more than £255,000 by 2021[2].

Rising rental costs

Another good indicator that property remains a solid investment is the  potential rental yield, and again the signs are there that property is a good place to put your money.

The website HomeLet analysed rental costs and found that they rose by an average rate of 3.1% year-on-year during August[3] 2016. The average UK rental value is now £913 a month, compared to £885 a month in the previous year.

The organisation predict that rents will continue to climb due to an increase in demand for private rented properties. Martin Totty, Chief Executive Officer at Barbon Insurance Group which owns HomeLet, said: “In the medium to longer term, the fundamental driver of rents will be the balance between demand and supply for rented property. We expect demand in the private rental sector to continue to grow, in line with demographic changes such as population growth, and as affordability concerns remain in the house purchase market, so it is important that we see efforts to support supply.”[4]

Confidence in numbers

A look at the mortgage markets demonstrates current confidence  in the property sector. The Council of Mortgage Lenders (CML) estimates that gross mortgage lending reached £22.5 billion in August 2016, which is 7% more than in July[5].

CML senior economist Mohammad Jamei said this showed that widely voiced fears about the housing market have not turned out to be correct: “Prospects for house purchase activity post-referendum look slightly subdued, when compared to late 2015 and early 2016. However, sentiment in the market recovered in August. This is reflected in stronger-than-expected transaction figures, and in our gross lending estimate.”[6]

So why is sentiment suddenly recovering? Mr Jamei suggests a number of factors are influencing the market, including the Bank of England’s monetary stimulus and the prospect of yet another rate cut in the future.

So IS property still a good investment?

Well, it’s in demand, it pays great returns for landlords, and prices are climbing. Even in the past when there have been drops in value, prices have recovered and gone on to climb even further.

Whether as a venture that will repay dividends or a home that will grow in value, property remains a solid investment. It doesn’t seem likely that will change any time soon.

Please note. The information in this article does not constitute financial advice or a recommendation to buy. No view is given as to the present or future value of property investment, and investors should form their own view or consult an IFA.[1] Source: ons.gov.uk[2] Source: thisismoney.co.uk[3] Source: homelet.co.uk[4] Source: ibtimes.co.uk[5] Source: cml.org.uk[6] Source: politicshome.com