Why Property?

There are many reasons why we at Perpetual believe Property is THE best, most solid and most reliable investment vehicle for long term wealth.

If you have not read Why Invest? then click here to understand the vital concept of Leverage

1. History:

History tells us that property is one of the soundest and most powerful investment vehicles available.

Since records began in the 1950’s, property has doubled in value every 7-10 years on average [for source see below].

According to The Halifax plc: UK property prices have risen in 36 out of the past 40 years, with an impressive average annual increase of 10.3%.

It is difficult to argue with these kind of statistics.

For more detail on the past success of property investment click history.

But of course we are Perpetual don't just rely on history - there are other factors we need to take into consideration.

2. Market Movements:

In UK we have far greater chances of success with property compared to almost anywhere in the world - that is why people from abroad invest in UK because they are seeking reliability. Here we have strong property ownership rights, buoyancy of the market and long term demand based on an ever increasing shortage of housing.

Despite these facts, we do get asked one question again and againg:What if the market crashed again as it did in the late 80s? To answer this question, we have to realise that the majority of the UK’s housing stock is not held by investors. For example, 91% of mortgages in 2006 were taken out by people on their own homes. This creates a situation where people cannot afford to sell their property and move if the value has gone down since its purchase. This forces an effective floor on prices below which they cannot afford to move.

Also, rents actually firmed during the last crash as more people became nervous about buying and choosing to rent instead. This meant that the demand for rental property was still very high; great news for investors.

Finally, h istory tells us that the value of the property will always return and increase over time: when it does, we then start re-mortgaging and taking tax free money out again.

So the moral of the story is if there is a 'crash' we are going to hold, not panic and we are definately not going to sell! In fact, we might increase the rate at which we buy.

For more detail on the UK market stability and affordability click UK Market

3. Demand Outweighing Supply:

The shortage in homes which we now face [great news for price increases AND rental demand] has been brought about by a number of factors in our view:

Migration into the UK from countries joining the EU and former British colonies is putting pressure on supply. There is also a trend towards people living alone as divorce rates are increasing, people come over to work and the average household size is clearly decreasing as families are getting smaller.

Despite noise from the Government, the house building rate just cannot keep up with demand, putting pressure on supply. In 2005 193,000 new houses were built. Although this is the highest for 15 years, it is still only 3/4 of the number that the Government’s independent report estimated would be required each year to bring house price inflation down to 1%.

The current shortfall is around 120,000 new homes per annum according to the 2003 Barker Report; by 2021 the Halifax predicts that the shortfall will have reached 400,000 per annum.

In other words, the situation is getting worse, putting increasing pressure on supply. All this does is push prices up, which is great news for us.

For more detail on the growth of rental property click Housing demand

The Biggest Buy To Let myths:

For the sensationalist things that people believe about Buy to Let but just aren't true (because they might be based on isolated events, rather than the norm) Click here

Growth in Buy To Let in the UK:

The UK rental market has grown significantly since the introduction of Assured Short hold Tenancies and the introduction of Buy to Let mortgages in 1996.

Between 1995 and 2003 the number of people needing to rent doubled from 46,000 to over 93,000 according to the Barker report.

This trend has continued with demand for the right type of rental properties in the correct areas remaining strong. Another effect of continuing price growth has been the increased difficulties first time buyers have in buying property. This has fuelled rental demand as more of the population need to rent for longer before being able to purchase.

Increased levels of personal spending have also created a situation where people save less and so don’t have deposit monies available to fund a mortgage.

Rents in the UK on average have doubled every 9 to 12 years through history. The UK is one of the most competitive Buy To Let mortgage markets in the world meaning that interest rates are low and lending environments efficient.

This is All Great News for Focused UK Investment!

Full Perpetual Market Analysis:

For a full Property Market Appraisal that you can print and read from the comfort of your own armchair click here for our Market Analysis media pack