Property is one of the most popular choices for those who want to invest their money.
However, deciding whether or not you want to invest your money in property is a different matter.
Everyone has their reasons for investing, but you have to carefully weigh up the pros and cons of property investment in the UK before you jump in. As property is a long-term, high stakes investment, you want to ensure that your money is going where it should be.
What Is An Investment Property?
At the very basic level, it’s a property other than the home in which you currently live that you purchase for investment purposes.
There are two prime uses for an investment property: the first is that some investors like to rent out the property as a second income and the second is that they buy it to improve it before selling on.
An investment property doesn’t have to be a standard house or flat; it can also be a commercial property or even land.
However, the majority of those who invest their money in property do tend to purchase residential property much of that is down to the flexibility that it offers as a second home.
At the moment, new legislation is giving would-be investors pause, which means that there are plenty of things to think about before piling cash into any home on the market right now.
Only once you are informed of the pros and cons of the property investment in the UK, can make a clearer choice.
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What Is A Second Home?
In a nutshell, a second home is a residence that you intend to occupy for at least part of the year. Some people use this as a holiday home and others a city pied-a-terre purely for commuter purposes.
The rules on stamp duty for a second home changed two years ago, where 3% extra is charged for the purchase of a second home.
As with anything that you may be looking to invest in, property prices can go up and down over time.
When you focus on the property of your choice being yours for the long-term, you can be very confident that, at some point, the value of the property will rise and give you the return that you’ve been looking for.
You do have to learn to stick out the fluctuations in the market, so you could choose to make upgrades and renovate your investment property to ensure that you get the return you are looking for.
You could choose to let out your property to tenants, which keeps the mortgage paid and can garner you a small profit at the same time.
This is a good way to keep the house in the right order with a little financial relief for you while you are deciding what to do with the property in the long term.
Some people choose to let out their second home so that it’s not just sat empty while gaining some value.
Another option is using your second home as a holiday home. You could let it short-term while you’re not using it, but otherwise be able to use it yourself.
Eventually, you could pass it down in the family or sell it on for a tidy profit. The options of an investment property are numerous in this sense, because you are not limited to what you could do with it.
When property prices are on a downturn, you have the perfect moment to swoop in a scoop up a property that will be at a bargain price.
Not every area of the country will see falls in the market, but that doesn’t mean that you can’t find a good deal, anyway.
As with anything, there is always a flipside to what seems like a great idea. You may still be uncertain about where you would like to put your money, and choosing to put your money into something that could hopefully generate a profit is a risk.
The question that you need to ask yourself is whether or not you could sit on that risk with the property as a second home, or you want to learn what is considered investment property for tax purposes and go from there.
Either way, here are the cons that you need to know before you go ahead:
Every property has stamp duty on it that needs to be paid when it’s purchased. Buy-to-let landlords have seen changes to the tax legislation in the last year, which means that thorough research has to be done before investing any cash.
There is a 3% stamp duty surcharge to consider if you are buying an investment property in the UK, which is liable for the entire cost of the property.
This can work out higher than expected, so you really should ensure you have the cash before you sign on the dotted line.
Changes To Taxes
The tax relief on ‘wear and tear’ and mortgage interest relief have both been quietly done away with or reduced in recent years, which is something you need to know before going ahead.
Mortgage interest relief is to be reduced and capped at 20% by 2020, which can impact you greatly should you choose to be a landlord.
If you are a higher-rate taxpayer, this will affect you and your finances.
While the Bank of England base rate is still comfortably sitting at 0.5%, the cost of borrowing is still cheap.
However, lenders are now double-checking an entire property portfolio when choosing to lend enough money for a new mortgage.
If some of your properties don’t generate enough cash to cover mortgage payments, you could be turned away – regardless of the impeccable credit rating and payment history you may have.
As you can see, there are a number of pros and cons of property investment in the UK.
Just remember that second homes have an additional stamp duty charge but do give you options for your future.
That means you can choose to use it as a holiday home you can use for part of the year, or a house you choose to buy-to-let and bring in tenants to relieve you of the mortgage costs.
When you consider the pros and cons of property investment in the UK, you can find more clarity in your decision.
Ultimately, it is going to come down to whether you want to have an asset to sell quickly or one you want to grow in value over time. Researching as much as you can is going to help you to make that choice an easy one.