Purchasing a buy-to-let property has been a consistently good way to invest in the property market in the UK over the last few decades. However, the combination of the Covid-19 pandemic, Brexit, government instability and price rises due to inflation, have made property investments a less appealing option for many investors. We take a brief look at what other options are out there for landlords willing to diversify in the current economic climate.
Current Rental Market Problems
With the cost of mortgages on the rise, landlords are finding that lenders are becoming more rigorous in their criteria for a self-financing rental property. This, combined with the costs of running and maintaining a rental property, means that some landlords are starting to sell their portfolios which is detrimental to the rental market as the number of available properties is then reduced. The Office for National Statistics reported that house prices have fallen 13.1% over the past year.
All these factors are not helpful for the property market as a whole because affordable rental properties are already becoming scarce for those affected by the cost of living crisis. However, there are other options out there for landlords, including crowdfunding for investments, property bonds, peer-to-peer lending and buying shares in property companies. If you need advice on any aspect of the home buying process, conveyancing solicitors London and elsewhere, together with companies such as Sam Conveyancing have expert insight into the market.
Property crowdfunding is where a group of investors get together and pool their funds in order to buy a property or invest in the financing of a larger property development. This is becoming an increasingly popular option amongst landlords as it can raise larger amounts of money and it can include investors with less capital who would not have been able to buy a property or development of that size. These kinds of investments are also less stressful than having to deal with individual properties and tenants.
Property bonds are one of the oldest types of investment products and they are usually fixed at a term of either two or five years. They are issued by specialist lending companies and they are often used to fund smaller house building companies to build much-needed homes. Interest rates are currently favourable on these types of investments and could be an inflation-beating way to diversify your portfolio in 2023.
Peer-to-peer lending is where an investor is matched with a borrower who wishes to take out a loan in order to renovate properties, purchase a buy-to-let or invest in a larger development. Borrowers will then work on these projects and then repay the investor with interest when they are complete. This form of lending is seen as higher risk than more traditional investments, but with the cost of traditional borrowing increasing, there may be more peer-to-peer investment options on offer. The yields can also be much higher, which means it is becoming an increasingly attractive opportunity for landlords.
Shares in property companies
Landlords are also investing in homebuilding companies. As the property market continues to grow and new homes are built in large numbers across the UK, buying shares in these firms is a good way to earn profits via dividends without any work by the investor.