On the 22nd of June this year, the Bank of England announced the latest blow to the British property market: the base rate has gone up to 5%.
News that UK interest rates are the highest since 2008 is hitting real estate hard – but the true challenge for investors is far from limited to this thirteenth consecutive increase in charges. Instead, it is the series of struggles that these incremental rises have brought with them, from soaring mortgage prices to plummeting portfolio valuations and the removal of most fixed-rate products from the buy-to-let landscape.
It's safe to say that traditional rentals seem to have reached a low point, with little evidence of recovery on the immediate horizon. As such, it may be time to consider alternative methods of investment – where property bonds may well provide the key to the stable profits you've been searching for.
The state of UK lettings in 2023
By the end of March 2023, 33% of the UK's landlords confessed their intentions to reduce the number of properties they rent across England and Wales. Although there are no official statistics on landlords selling up this year, several studies have estimated a considerable escalation in the number of property owners abandoning the letting scene. The government's latest failure to extend financial help to those with buy-to-let mortgages only seems to have fanned the flames, leaving many questioning whether it's still worth investing in a rental property.
Of course, a fluctuating market is only natural and, for those landlords willing to stick it out, there may well be an increase in capital value to come. Most experts predict improvements within the next two to three years, though this time period could easily become longer if the burst property bubble turns into a full-on crash.
What does this mean for investors?
For some, the temporary house-price lull we are currently witnessing – combined with an increased number of rental-ready properties hitting the market due to sales – is an excellent opportunity to grab a bargain. This is particularly true for those willing to get stuck in with renovations that could potentially bring energy-inefficient properties up to the new 2028 EPC standards. For others, however, the increased effort required to keep up with rental demands in 2023 is far too much, especially in light of such unpredictable returns.
The issue is that, in such a volatile market, low-level involvement in rental property is no longer an option. There may still be plenty of demand for rented housing and plenty of investment opportunity for those willing to look for it, but landlords looking to turn true profit need to be ruthless – not only in their property criteria but also in their choice of location. Then there's the pressure of keeping up with the demands of the new housing reform, keeping tenants happy and ensuring that everything within the rental property continues to run as it should. It's a lot of energy to invest in the roll of a dice.
Breaking the mortgage mould
If the buy-to-let market is in pieces, then property bonds can only be described as the glue holding property investment together.
The inherent appeal of property bonds in times like these is the promise of fixed returns. In other words, the risk-averse among you can still benefit from a predictable income stream. Unlike buy-to-let mortgages, which may see rental income fluctuate or even face potential void periods during times of crisis, property bonds provide investors with a consistent, predetermined turnover. Not only does this predictability mitigate the uncertainties of a challenged market, but it also reduces the risk of income fluctuations and potential financial strain.
Property bonds are also an excellent alternative for those who would prefer to adopt a more passive investment approach. This is because the property bond provider takes on the burdens and complexities of retaining and managing the property, rather than leaving you to face challenges such as property maintenance, tenant management and regulatory compliance – as you would if you opted for buy-to-let. Indeed, these responsibilities can prove incredibly time-consuming and financially demanding, especially during market downturns.
Why it's best to invest in property bonds
Alternative investment through property bonds allows investors to bypass a number of common landlord-related hurdles since you would not be directly involved in property management. The hands-off nature of property bonds provides a hassle-free investment experience that furthermore shields you from the potential pitfalls and uncertainties that can arise in a more unpredictable market.
Are there any risks?
Whilst there is a risk for alternative property investment even in stable economies, in light of the current buy-to-let climate, it certainly seems like the most favourable option right now. Investors can typically expect an average return rate of between 8 – 12% in just two years – which vastly outweighs the immediate profits to be gained from buy-to-let housing, particularly in the current climate.
The future of property investment
The decision to opt for property bonds vs a buy-to-let mortgage is ultimately a matter of personal choice. Nevertheless, there is one clear thing: alternative investment is potentially the most profitable decision available to property investors in the UK right now, whether you are looking to add a touch of stability to an existing buy-to-let portfolio as you ride the current volatility out or are ready to launch anew into the development market. And if the prospects of investment in Britain still leaves you blue, you can always venture into alternative investment in thriving property markets like that of Dubai. It's simply a matter of finding the right investment partner, like Hunter Jones Group, and allowing us to take care of the rest.