The long-term capital growth of property investments is fundamental in understanding its strong performance in more recent years.
In January 2020, Market Financial Solutions commissioned an independent survey of over 750 UK real estate investors, all of whom own three or more residential properties across Britain and Northern Ireland.
We found that 79 per cent intended to invest in more properties in the year ahead, with 61 per cent saying that bricks and mortar was, in their eyes, a safer investment than most other options available to them.
There are, however, several other important factors at play. Coupled with this consistently high demand has been the well documented shortage in available housing. This imbalance between supply and demand has been critical in driving UK house prices upwards over many decades.
In more recent years, record low interest rates have played their part, too. Since March 2009, the Bank of England’s base rate remained under 1 per cent, far below the levels prior to the global financial crash (the base rate in July 2007 was 5.75 per cent).
Last year it fell to a new all-time low of 0.1 per cent, which has meant that borrowing has been relatively cheap for homebuyers and investors.
The positive sentiment towards bricks and mortar as a safe asset (driven by historic data), the lack of supply, the low interest rate environment and, more recently, the stamp duty holiday, have all come together to fuel property investment activity in recent years.
This has helped to negate any potential negative impact of Brexit on the property market, instead driving prices upwards.
Buy-to-let market also undergoes changes
When assessing the evolution and performance of the property market since 2016, it is important, certainly from a property investment perspective, to also pay due attention to other reforms that have affected the market.
After all, over the past five years, the buy-to-let (BTL) market has experienced a number of notable changes, which have changed the makeup of the sector.
In April 2016, an additional 3 per cent stamp duty surcharge was introduced for second homes. One year later, a tapered reduction in mortgage interest tax relief was introduced.
In October 2018, new regulations were brought in for houses in multiple occupation (HMOs).
In April 2019, the Government tabled a motion to abolish section 21 of the Housing Act 1988, announcing “private landlords will no longer be able to evict tenants from their homes at short notice and without good reason”. In May 2021 it was confirmed that the Bill was to be brought forward to establish this reform.
This series of reforms has naturally affected the property investment sector and caused landlords to reassess how they are managing their portfolios. For instance, the new HMO regulations have resulted in significant refurbishment and renovation activity, as landlords sought to bring their properties in line with the new regulation.