The British property market has been on the rise again since the election, but recent research shows retirement incomes are heading in the opposite direction. Jim Coupe looks at how British expats are looking back home to set themselves up for the future
Recent research from the Prudential is sober reading for the next generation of retirees. It found only 27% of British 45 to 55 year olds think their pensions will provide them with a comfortable life.
Of course, part of the cause of this malaise is a positive one – we’re living longer, but the other side is that we have failed to save enough or not done so wisely. One of the main lessons learnt from the economic downturn, was not to leave pension pots and investments too narrowly focused. If you’d had all your money in stocks and shares in 2008 the effect on your hard earned savings was not good.
Property has traditionally seen excellent long term price inflation and more recently there are further reasons why owning a buy-to-let can be good for your financial health. The latest rental index from HomeLet shows rental prices increased in every region of the UK in the three months to May of this year, taking average monthly rents to £935, or £738 excluding London. Of course there are vast differences in the regions. The further you go from London, generally the lower the house price but the higher the rental yield.
London house prices did cool a little in the run up to the UK elections, but the Conservative victory provided a further boost to the housing market, with asking prices across the country rising 3% in June to a new record high. In London that means the average price has risen above the £600,000 level for the first time. London yields are around 2-3%, the South East of England 4-5% and we’ve seen yields of 6%+ in the North of England.
The private rental market in England will continue rising according to the UK government’s English Housing Survey. It found that in 2013-14, 19% (4.4 million) of households were renting privately, up from 18% in the previous year and 11% in 2003, with young people aged 25-34 more likely to be renting privately than buying. This age group struggles to afford to buy and renting privately has become the norm.
If you are thinking about a buy-to-let then affordability is critical, as too is that ‘diversified’ portfolio. The UK currently still has record low interest rates, which might not rise soon and probably slowly, but a buy-to-let is a long term investment, so factor that in. Also factor in costs such as legal fees, insurance, ongoing maintenance, ground rents, agency fees and service charges.
Most people buy in areas they know, but also think about what kind of property you’re buying. It’s good to invest in areas where young professional commuters will be looking but is the property going to appeal to them? Student accommodation potentially offers high returns, but there are few lenders prepared to mortgage such accommodation.
Some lenders insist family members live in the property, others insist they don’t, so check individual mortgage company criteria. From an investment point of view you must be able to put your buy-to-let onto the open market to bring in rental returns.
Getting a buy-to-let mortgage as an expat isn’t easy, especially if you’re already retired, but there are options if you meet the right criteria and with good rental yields outside of the capital and long term house price inflation, it could go some way to helping you achieve that long, comfortable life.
Jim Coupe is Managing Director, Skipton International