The coronavirus pandemic has reshaped the way we think about virtually every aspect of our lives, not least our finances. If you’re an expat living away from the UK, the chances are that you have been financially impacted by COVID-19, and your country of residence may not have been as generous as the UK government with its furlough scheme. Having a diverse range of income streams is one of the best ways to shield against future uncertainties, offering peace of mind that you’ll have money rolling into the bank come what may.
One investment opportunity that has always proven to be popular is property, serving as an alternative to a pension fund or putting your money into shares. Though it’s not without its challenges, investment in property allows you to hold onto a slice of Blighty when you’re living it up on the other side of the world, and because it’s tangible in nature, it’s much easier to manage than complex stocks and shares investments. One of the reasons why property is popular is that it allows for both capital gains (house prices continue to increase in the UK) and has a secondary benefit of regular monthly income via rental payments. Combined with a buy-to-let mortgage, and it’s easy to convert a £25,000 deposit into a £100,000 asset.
Despite economic uncertainty ahead, now’s a great time to invest in property. Here’s why….
As house prices continue to rise, first-time-buyers are now forced to spend longer in rented accommodation until they’re able to save for a deposit. According to UK government data, the number of people living in private rented accommodation soared from 2.8 million in 2007 to 4.5 million in 2017, an increase of 1.7 million (63%). This trend will continue in the years ahead as the “COVID-recession” and associated uncertainty in the job market delays house purchases. Lenders are more cautious than ever and 5%, 10%, and 15% deposit mortgages have been pulled. Add in that some landlords are selling their properties due to tax changes and their own concerns for the economy, and it’s never been easier to buy a home to rent.
Because of increased demand and a shortage of available rental properties, the average rent in England reached £700 per month in March 2020 - the highest rate on record. Outside of London, Newport, Bristol, Nottingham, Cambridge, and Belfast are now considered the most in-demand areas for rental homes, though there are opportunities virtually everywhere.
Another reason why expats should consider property investment as a priority is that UK interest rates are now at record lows - encouraging lending. The Bank of England base rate is now at 0.1%, and some banks are offering buy-to-let mortgages with interest rates as low as 1.2% - just ten years ago, you could expect to be charged anywhere from 3-10% interest.
Lower borrowing rates means first-time expat landlords are able to access more capital and invest in more properties with lower deposits, though you should speak to a financial advisor before making an investment to ensure you’re aware of potential tax liabilities as an expat.
For expats who already have properties in the UK, current interest rates are an opportunity to remortgage properties to unlock more capital to expand your portfolio. Whether you’d prefer an interest-only mortgage or capital repayment mortgage, there’s never been a better time to get your foot on the UK property ladder, or indeed add to your current portfolio. If you are a first-time buyer in the UK, you can benefit from the government’s Stamp Duty holiday.
One of the most important considerations to make when investing in buy-to-let property is the overall property market. You don’t want to lay down £100,000 for a house today, only for it to be worth £90,000 in five years’ time. What’s interesting is that house prices rose 2.6% in August following the reopening of the economy, fuelled by the Stamp Duty Land Tax rates reduction (which will last through to 31 March 2021) and pent-up demand from buyers.
However, in the months and years ahead, experts have warned that we’ll face “the worst recession for 300 years” and that unemployment will reach new heights. Because of this, it’s expected that house prices will dip. For expat investors, this could unlock access to quality buy-to-let properties at discounted prices, but it all depends on how you time the market.
However you fund your expat lifestyle, investing in property allows you to benefit from both monthly cash flow and capital appreciation. Appreciation is the increase in the value of the property - for example, pay £100,000 for a property in 2020 and sell for £120,000 in 2035 - and the cash flow is the monthly profit you make from rent. Changes in taxation law mean that buy-to-let properties aren’t quite as lucrative as they were, but with the right property and tenants, it’s easy to cover the cost of a mortgage and have money left over every month.
Even when you take into account repairs, maintenance, fees and void periods, rental income is steadier than most other forms of investment and is virtually guaranteed. In fact, some lettings agents offer a guaranteed rental scheme, though take a higher percentage of rent.
Finally, investing in buy-to-let property in the UK as an expat means that you can protect your assets against stock market crashes. Whether you’ve been investing in stock and shares or putting money into a private pension pot, the truth is that your investments cannot be guaranteed. Unlike other investment products, putting money into property can increase its value over time significantly - you can hedge against inflation and protect against volatility.
In one single day in March, the FTSE 100 lost 10% of its market value - and 25% in the first three months of the year. Although house prices do go up and down, they’re not as volatile as the stock market, and almost always recover, as the 2008 financial crisis has proven.
Are you considering investing in buy-to-let properties? Let us know your story in our community and check back soon for more expat investment advice.
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