Landlord Knowledge - Home of the Savvy Buy to Let Property Investor

House Price Downturn Gives Rise to Alternative Property Investments

As the housing market in the UK cools amidst economic turbulence, residential equity growth seems to be lagging behind, providing some of the weakest investment returns, according to recent research by easyMoney, a peer-to-peer real estate investment platform. The analysis suggests that investors could more than double their expected profits by branching out to alternative sectors within the property industry.

Traditionally, buying a home has been heralded as one of the most secure and profitable ways to invest. This belief has been particularly underscored by the housing price surge driven by the COVID pandemic in recent years. However, the changing market trends paint a different picture. The latest annual house price growth data suggests that the equity gain from residential property investment has dwindled to a mere 3.5% per year. As the market continues to grapple with harsh economic realities, these figures could potentially drop even further.

So, what’s the alternative for those seeking more lucrative returns on their investments? Real Estate Investment Trusts (REITs), despite their popularity, only deliver an average yield of 4.4%, not quite a compelling prospect. In light of recent steep rent increments, buy-to-let investments also seem to fall short, offering a mere 5.1% in expected annual returns, based on an average house price of £286,489 and an average monthly rent of £1,229.

Commercial property investments, on the other hand, look somewhat more promising, boasting slightly stronger yields of 5.8%, while property bonds are offering an expected return of 6%.

The clear frontrunner, though, in this current climate are Innovative Finance ISAs (IFISAs), which seem to be outperforming their counterparts. IFISAs, which allow you to invest in peer-to-peer lending and crowdfunding under your tax-free ISA allowance, are providing robust returns. A broad analysis of various IFISA products available in the market, conducted by easyMoney, indicates that the expected returns currently being offered average a hefty 7.7%.

Jason Ferrando, CEO of easyMoney, weighed in on these findings, stating, “During the house price boom initiated by 2020’s stamp duty holiday, basic bricks and mortar investments generated great returns for amateur or accidental investors – the latter being those who buy property for the purposes of living in it and for whom the subsequent equity growth is an additional bonus.”

He added, “But now that market conditions have changed so dramatically, anyone who is looking to make profit from the UK property industry is going to need to build a more diverse portfolio and look seriously at alternative and emerging investment avenues, the best of which is clearly IFISAs.”

 

RSS
Follow by Email
X (Twitter)