As the United Kingdom property market starts to recover post Brexit, investors and developers are looking at creative ways, both to receive the highest possible yield and to finance their properties for the next decade.
Propwealth, a UK-based property company run by South Africans, highlights three affordable options that are proving very popular with local and UK investors, making it easier to get into this asset class.
Director, Anthony Doyle, outlines the options: “As investors, we always analyse the needs for both the tenants and the buyers and have found three niches which fulfil these needs perfectly. The buy-to-let market is changing so quickly in the UK that we all need to be thinking outside the box in order to create new opportunities and returns.”
The UK property market is perfectly poised to enjoy years of growth, in a low interest rate environment, as the UK government shortfalls new builds by 150 000 homes per year.
Furthermore, he says the county’s population is increasing and fewer people are buying their own homes, creating a large middle-class tenant population. This all bodes well for the property investor who has a long-term outlook.
Your key property investment requirements for UK investing
- Affordable entry-level pricing
- Developers with strong track records
- Properties must be fully managed by local agents making them ideal for long-distant investing
- They must offer high net yields after all costs – cashflow is the key feature
- Properties must be situated in regeneration areas and offer potential capital growth
- And must be situated in high tenant-demand regions
- Remember that your R1 million discretionary allowance can go a long way in the UK market
The three Investment concepts
1. Studio rooms offering low entry levels and high yields
There is a severe shortage of quality studio rooms with shared facilities in most major cities.
Key rental agents work with many government and charitable organisations which require this type of accommodation. Furthermore, many others including blue collar workers, single people and those on short contracts and others for various reasons, require accommodation of this type.
This style of property will generally offer South Africans an entry into the UK market for less than £30 000 with yields in excess of 10% net, plus all studios should be fully managed by local agents and must carry full title deeds on each studio room like any other normal studio flat.
As a matter of interest, stay clear of investments where you buy into a company that owns the property or room. In circumstances like this, you have no control over the property and are simply a shareholder without a title deed. Your risk is increased.
2. Developer-financing concept versus a normal mortgage
This concept offers a perfect option for those who either don’t want to mortgage a property, or those who simply can’t get one, but who might have their annual discretionary allowances to utilise.
It is useful to bear in mind that UK banks will only finance properties over £100 000 in value.
The property financing is effectively done via the developer and not a bank. Therefore, age, affordability and circumstances are not taken into account in this financing scenario.
How does this work?
In the first scenario, and if we assume the purchase price is £100 000, with completion during 2022, the buyer has two options for financing; either the normal way of buying, then by putting down a 30% deposit (paid monthly over 2 years, interest free). The investor then bonds or pays cash for the remainder upon legal completion (approximately 2 years later).
Alternatively, the investor can opt for this developer-financing option – the buyer has 2 years to pay off a 60% deposit (interest free) and upon legal, physical completion, the developer then rents out the flat with the tenant paying off the remainder of the 40% purchase price over 5 years. In this way the investor has only paid £60 000 for a property that will have increased in capital with the tenant paying off £40 000. The rental income streams then commence from the date the full purchase price is paid off.
3. Standard entry-level, renovated flats
For those people who want a standard, traditional investment, a typical entry-level property is a fully upgraded flat in a period property. This is a popular style of investment that appeals to many UK investors and tenants. In this model the developer buys and totally upgrades the whole structure, and then sells off individual flats with full title. Generally, the properties consist of studio, one and two beds and, if in regeneration areas, offer excellent yields at prices generally from £50 000.
“The savvy investor has moved away from the high-priced South East of England and is following the path where the regeneration is occurring, says Doyle. “There is no doubt that the investor who heads north, and who has a long-term cashflow driven outlook, will do extremely well in UK real restate. And currently, with low prices, and new rental and financing concepts being created, this makes the asset class even more accessible and attractive to many more people.”
With these factors in mind, Propwealth has selected some unique properties that not only meet these requirements, but also offer some creative financing.
Mersey house studio rooms
Mersey House studios from £29 000 and 10.5% net yields, comes onto the market in March and is in a prime blue-collar area, only 3 minutes’ walk to the River Mersey waterfront with some units having river views. There is a parade of shops within a 1-minute walk with many services and products for sale and a Tesco mini-supermarket, Subway fast food restaurant and a bank ATM all 30m away.
Market House Liverpool and Lombard House in Nottingham
Propwealth has two developments on offer in Liverpool and Nottingham, which offer the buyer a self-financing approach to buying. From £99 000 with 7.5% yields.
Hawthorne House Liverpool
A fully upgraded period Victorian property, situated in a £1 billion regeneration area, consisting of three flats with prices from £57 000 and yields from 6.5% plus.