Property investment

Financial freedom is the dream of everyone. Who doesn’t seek the opportunity to live his dream life without sacrificing most of his time on a 9 am – 5 pm full job? But this couldn’t be achieved unless you change your financial dependence on earned income to be on passive income.

Property investment is on of the most effective ways to achieve financial freedom. A property could be rented to yield an ongoing passive income and it could be a long term investment because reals estate values are usually going up.

But, are there other factors that may change your mind about this route of investment? Or it is an assured good investment. What about the property market trends and what changes are expected to happen? That’s what will be discussed in details by this topic.



Is buying property a good investment?

Most investments have two possible outcomes, either to lose or win. But, in case of property investment, it is a safe investment that usually wins if you run it right. You may ask yourself why to invest your money in a property rather than a saving account. Let’s assume you have £30,000 and put them in a saving account. If the rate is 4%, you will make £1,200 by the end of the first year. But, the principle amount is still £30,000.


What about investing the £30,000 in buying a small property? You need to know that Capital values increase usually at a higher rate than money does. So, on the long run, you are sure to make a margin profit if you sold your property. Furthermore, you can increase that value by maintaining and improving your property on a regular basis. So, the principle amount will be increased on the long run. Instead of the 4% return from your money if it is put in a saving account, you can receive an ongoing passive income from renting your property that will actually exceed the return from a saving account.


As a beginner, you will need a relatively big amount of money to start this business. Luckily, anyone can now borrow loans to buy a property, and you can pay your loan back by the returns you will receive from renting your property. But, you should make sure that you have another source of income to pay back your loan otherwise your property will be a burden rather than an investment in times when there are no renters.


Property market trends for the past years

The property market in UK grows continuously thanks to the improvement in technology. Now, there are a lot of real estate investors who run their property investment online. Over the past few years, there are key trends in UK you need to consider if you decide to enter the property market.




Buying is cheaper than renting

Rentals in the UK is increasing despite the fact that buying is cheaper than renting. Think about the average renting price that would be paid for renting a property. Current rates assure that the monthly interest on a loan that is used to buy a property is lower than monthly payments for renting a property. So, you should be encouraged to invest in a property that will yield more than what you would pay as interest on a loan.


New homes are more popular

Renters usually look for new homes rather than old ones because these homes are more energy efficient. That enables them to save hundreds of pounds yearly on energy saving. Furthermore, they save money that would be paid on old properties foe renovating. For that, most property investors prefer to invest in new properties rather than the older ones.


Home prices are rising continuously

In recent years, home prices have increased steadily and they are expected to continue rising. Based on a report from Halifax, prices in Jan, 2020 are 4% higher than prices in Jan, 2019. And this increase is ongoing.

Location influences buyers

In recent years, the online delivery services have affected the location influence on property buyers. Now, properties shouldn’t be near to markets and local shops to attract buyers, the trend is has changed. Now, properties that are near to schools and transport services are more likely to attract property investors.



What to expect about this market

A lot of surveys expect property prices and rental prices to increase over the next over the next 12 months, Halifax said that the increase will be from 1% to 3%, Rightmove said that the increase will be from 2% to 4%, and Knight Frank said that prices will increase by 2% in capital cities and 4% in the rest of UK.

These expectations are based on the fact that the supply of properties has decreased. So, there will be a shortage that makes a lot of people rethink before deciding to sell their properties. So, there will be less properties to invest in by buyers, the reason why the available for sale properties will be offered at higher prices. Furthermore, a lot of people who are willing to buy properties will find a shortage of availability. So, renters are expected to be more than buyers and this will increase the rental rate as well.



Mortgage rates and interest calculation

A Mortgage is the loan that property investors mostly use when they decide to start a property investment, it is the biggest commitment you make. So, the first thing you need to understand before entering this business is how mortgage rates will be applied by lenders on your loan to calculate monthly interest and to make sure that you can afford the burden of this commitment.

Mortgages are divided into two types, the interest only and the repayment mortgage. The interest only mortgage is repaid back after the length of the loan while the repayment mortgage is repaid back over the length of the loan.

As an investor, you are more expected to choose an interest only mortgage because it requires paying fewer monthly payments and delegating the repayment of the capital amount to the end of the loan length. But, if you plan to reduce the capital amount over the loan length to be zero at the end, you will prefer the repayment mortgage type.


Interest only mortgage calculation

To calculate interest only monthly payments, you need to multiply the principle amount of the loan by the annual interest rate, then allocate the result to 12 months to determine the monthly payments. For example, if you plan to take a mortgage of £100,000 at 3% of annual interest rate, monthly payment are calculated as follows.

Annual payment = 100,000 x 3% = £3,000

Monthly payment = 3,000 ÷ 12 = £250

Also consider additional charges plus your monthly payments over the length of the loan. You may also be charged for extra fees when you submit your application and you will be asked to pay a flat amount of the loan advance. Over the loan length, delays or other violations could also lead to additional side payments.