Property investment could be the key to future home ownership
Property investment could be the key to your future as a homeowner in London. That’s the loud message from the latest surveys from Halifax and Moneysupermarket.com. Most people expect residential property prices to surge in the UK. It is little comfort for would-be homeowners in London, who could have to save for almost 30 years to get a deposit for a new home.
So, if home ownership in London is unaffordable now, the question is, how could property investment opportunities help you to become a homeowner? In this article, we examine the latest investment news from Halifax and Moneysupermarket.com and explain why property investment could help you own your home in London much sooner than you think possible.
Six in 10 think house prices will surge
According to the latest Halifax survey measuring confidence in the UK housing market, 58% of people expect house prices to rise in the next 12 months, while only one in 10 expect them to fall. It is a marked turnaround from the October’s survey when Brexit woes led to a record fall in optimism.
House prices rose by 5.8% in the year to February 2017, according to the Office for National Statistics (ONS). That’s lower than the 7.3% rise in 2016, but a healthy uptick from the 5.3% rise in the year to January 2017.
If property prices continue to rise at 5% and above, the money you’ve already saved towards your deposit is not going to keep pace. You will have to save even harder to get the deposit you need. It is the experience of home buyers in London.
It could be nearly 30 years before London buyers save their home deposit
If you live in London and want to buy a pad in Kensington and Chelsea or Camden, you should prepare for a wait of between 20 and 30 years before you have the deposit to get a mortgage:
- The average property price in Kensington and Chelsea is £1.3 million, and the average deposit is 52% of this. A couple earning the average wage in the borough would need to save for 23 years before having the deposit for their home.
- In Camden, a couple would need to be saving for 27 years before being able to afford the average deposit of more than £490,000.
By the way, it’s not much better outside of London. There are more than 30 local authorities in which it would take more than 10 years for the average couple to save the deposit they need to buy a home.
Property investment is the key to home ownership
Savvy investors are turning to property investment as a deposit-saving vehicle. Let’s say that you have £60,000 or £70,000 saved up towards your deposit on a home in London. You are way off the amount you need for your deposit. You want your savings to be safe, and so you have stashed it in a high-interest account.
If you lock your savings away in a Paragon high-interest account for five years, you’ll earn interest of 2.25% per year. On £70,000, that’s around £1,575 per year. Meanwhile, property prices are rising at more than 5% per year. Inflation is 2.3%. Your money is losing home buying power and is being eroded in absolute spending terms. No wonder you must save for so long – your money isn’t working for you.
The answer is to invest in a property investment solution that offers safety of capital and a rate of return that beats house price inflation. “Too god to be true,” you say. Perhaps not.
Check into hotel rooms for deposit saving power
Instead of leaving your savings in a high-interest account to lose value, why not consider buying a hotel room? The hotel and leisure sector of the economy is one of the fastest growing in the UK economy. Hotel management teams are expanding their offering, and to finance this the best are selling hotel rooms to investors.
In return for your investment, you receive a guaranteed income. On top of this, your capital is guaranteed, and some of these types of investment offer you a guaranteed (but fixed) rate of capital growth on your investment capital.
Here’s an example of a hotel room investment we recently helped to launch:
- An established hotel in Darlington
- A rental guarantee of 8% per year for five years
- Guaranteed capital growth of 15% at the five-year investment maturity
- Low cost of entry
After five years, an investment of £65,000 in one of the few hotel rooms available in this hotel would have yielded:
- £26,000 in gross income
- £9,750 in capital gain
- A total return of £35,750
- Total cash available of £100,750
Compare that to the 2.25% interest rate available on the best five-year fixed term deposit account, which would have grossed total interest of just £7,649 over the same period.
To put this into some perspective:
- A couple investing £65,000 in the above hotel room investment opportunity would have approximately £100,750 after five years
- A couple saving £65,000 in the Paragon five-year high-interest account (2.25%) would have approximately £72,649 after five years
Other property investments as deposit-producing schemes
As you can see, hotel room investment could slash the time it takes you to save the full deposit for a home purchase in London. But there are other property investments that could work equally well, depending on your circumstances.
For example, student accommodation is supported by a growing student population in the UK. Universities can’t keep pace with accommodation needs, and purpose-built student accommodation offers high yields with rental payments often guaranteed by parent guarantors.
Traditional buy-to-let residential investment property, bought with the aid of a mortgage, gives you the benefit of leveraging in property investment – making money on other people’s money!
The bottom line
The bottom line is that you don’t have to slog long and unsocial hours for decades to save your deposit. If you think outside the box, explore your options, and invest a little creatively, you could use property investment to earn your deposit in a fraction of the time it would take you otherwise. And while you’re doing so, you could still have a life worth living.
The deposit for your first home could be closer than you think. To discuss your financial objectives and receive a personal evaluation of the benefits of property investment, contact one of our team today on +44 (0)207 923 6100. We’ll help you unlock the power of your existing savings, and instead of property prices surging away from you, your deposit savings could surge towards the amount you need to make your home ownership dream a reality.
Live with passion
Brett Alegre-Wood
