Property Investment is Booming: How to invest without the buy-to-let challenges.
In this article we discuss investing in property – both as a buy to let investor as well as using property investment bonds. So, which solution is suitable for you? Firstly …
Why invest in property?
In the UK, bricks and mortar have traditionally been seen as a sound investment – even taking into account the effects of property price slumps during a recession. The figures don’t lie – in the last 20 years, average UK house prices have soared by 189%.
Buy to let (BTL) investing
Across the UK, rents continue to rise which is why investing in property can be such an attractive proposition. Not only do you get the capital growth, but a monthly income too. With this in mind, it’s not surprising that there are a reported 5.45m homes classed as a buy to let or shared home.
Of course, being a landlord isn’t merely a case of buying a property, getting a tenant, and letting the rent roll in. There is much more to it – from ensuring you carry out the correct checks when accepting a tenant, to property maintenance and making sure you fulfil your legal obligations as a landlord.
There are also those periods where the property may be vacant or rent might be owed in arrears – so no matter how much of a successful property investor you are, your income isn’t guaranteed.
Why are landlords leaving the BTL market?
The number of landlords, however, is dwindling, particularly in recent years’ where a raft of taxation and regulation changes have hugely impacted on landlords’ profits. These include but are not limited to:
· Landlords being charged for an extra 3% on top of the normal Stamp Duty Land Tax rates
· Changes to HMO licensing and minimum room sizes – so even if a landlord has a top of the range property, if the room size does not meet the criteria, she or he will have to spend money creating a bigger space
· Onerous obligations to increase insulation on older properties
· The Tenants Fee Ban which means landlords are having to pay higher management charges
· The abolition of Section 21 Notice – meaning landlords can no longer reclaim their property without a valid reason
· The reduction of tax relief on BTL mortgage payments meaning many landlords will face much bigger tax bills
· the removal of the 10% wear and tear allowance.
· Following the credit crunch of 2008, it is harder to obtain a BTL mortgage due to new regulation introduced by the Prudential Regulation Authority, with more restrictive affordability testing and additional considerations for portfolio landlords.
Property Investment Bonds
If you want to enjoy the growth of your capital in property, but would prefer a “hands-off” approach, then property investment bonds may be an option.
Property investment bonds are a way for house-builders to raise money from investors in the form of a loan for specific housebuilding projects.
Property bonds are designed for the investor who wants to take advantage of the ever-growing property market, without being a landlord.
How do property bonds work?
Certain companies that need to raise finance, can issue a bond. Developers or construction companies usually issue property bonds for funding property development.
Different companies will offer different terms and benefits. The interest rate you will receive on the bond will vary and will depend on its term and whether you wish to receive interest payments monthly or at the end of the term (typically 3 – 5 years).
Attractive minimum investment rates
One of the biggest benefits of investing in property bonds is that you can start with a smaller capital investment than if you bought a buy to let. As an example, the latest figures show that the average UK property price is £234,853 – so, if you wanted to invest in a property with a mortgage, you could need around a 25% deposit – £58,700.
With property bonds, the investment amounts can often be much lower. With Acorn Investment Bonds, the minimum amount starts at just £5,000 – so you can invest as much or as little as you choose.
Some property investment bonds offer a fixed rate of interest – providing sophisticated and High Net Worth investors the opportunity to earn a fixed rate return of up to 10%pa.
Is there anything else I need to know about property investment bonds?
Your capital is at risk and investments are not covered by the Financial Services Compensation Scheme (FSCS). Check that the company you plan to invest in is a well-established company that has assets to support its liabilities.
Being a landlord can be hard work – but can offer fruitful rewards.
If you want the benefits of investing in property, without the hassle of being a landlord, why not find out more by visiting Acorn Investment Bonds here?