Is 2020 a Good Year to Invest in UK Property?
Through all the economic turmoil caused by the lockdowns of COVID-19, the UK Property market has remained strong and values stable. In fact, rental values have recently reached record high levels. Yet for some investors, there still seems to be some trepidation.
There are some very good reasons to invest now, rather than sit back and wait to see what happens next. To start with, have you factored in the additional costs you will pay if you choose to wait until things look more settled? With the UK Chancellors ‘Stamp Duty Holiday’ announcement in July, buying a property now will save you a large sum of tax money that would normally have been payable. This tax relief offer is only available until April 2021, so for those waiting on the sidelines, look at the savings on taxes you can realise by acting now.
Current Tax Savings, Currency & Discounts
Like many areas of the UK economy, the housing market is benefitting hugely from this help announced by the Chancellor of the Exchequer last month. The Stamp Duty Land Tax threshold has been raised from ￡125,000 to ￡500,000. Although the buy-to-let / second home stamp duty surcharge rate of 3% will still apply, first time buyers using the property for their own use, will pay no stamp duty at all up to a value of ￡500,000.
So, on a purchase of exactly ￡500,000 this will reduce the stamp duty bill from ￡15,000 to zero. This saving will also apply to those buy-to-let investors and second property owners, by reducing their bill by this exact same rate. An investor will now only pay the 3% surcharge tax and NOT this usual SDLT rate of tax. This is a significant saving for anyone considering a property investment purchase, as this tax is lost money for the investor. This is one extra cost that you do not need to pay, if you make your purchase now.
In addition to this generous reduction in Stamp duty, the exchange rate for Sterling is still relatively low compared to the average, and this is especially the case for buyers holding Thai Baht or Euro currency. Although the exchange rate has been lower, and there is no guarantee Sterling will rise, it does offer an opportune moment to invest, and the potential of an exchange rate boost in the future.
As an example, buying that same ￡500,000 property now will cost you around THB 20m today, whereas, if and when the ￡ rises against the THB (it is widely reported the BOT wants to devalue the THB) to say 42/1, this purchase will not cost the Thai buyer THB 21m., an extra THB 1m.
At the same time, many developers offering some good price deals for cash buyers, which when added to the tax savings and currency exchange rate benefits, actually make this a great time to buy in the UK. However, with demand now rising in the UK market, it is quite likely developers will offer lower and lower discounts and perhaps in some cases none at all as time goes on. OK, to a certain extent a developer may always offer some kind of discount, but the tax deal and currency rate will not last for much longer, so waiting will only assure you of paying more.
An opportunity Lost – Tax Increases coming
Before the Covid-19 outbreak, the UK Budget mandated a 2% increase in the Stamp duty rate for overseas buyers, from April 2021. This will apply to British overseas residents along with foreign buyers. For the ￡500,000 property example we used above, this extra 2% charge will add an additional amount of ￡10,000 to the amount of tax you will need to pay. So, by waiting until next year, not only will you be paying an extra (new) tax of ￡10,000 on your purchase, you will also have missed out on the ￡15,000 you would have saved by taking advantage of the Tax Holiday given by the chancellor. This is a total of ￡25,000 lost overall; 5% of the property price lost in taxes.
It may be that in April 2021 the Chancellor will continue the lower rate of stamp duty or suspend the overseas rate being introduced, but this is not certain. One thing that is certain however, is that at some point in the future the UK government will need to increase its tax revenue to pay for the Covid-19 relief it has provided.
2020 Offers Great Rental Yields
Rental yields will always vary over a period of ownership. Outside of London, some parts of the UK will offer you around 5 – 7% net income PA. A good investment property should provide you with a positive cash flow, enough to cover maintenance of the property and mortgage interest repayments (if applicable) as well as giving you additional income.
When looking for the very best rental yields, you’ll want to target areas that are forecasting excellent tenant demand so as to deliver you consistent rental income. Right now in 2020, the best performing areas in the main are the North of England, with a focus on the North West, Liverpool, Manchester and more so the surrounding towns.
Why take the chance of waiting when all these advantages are available now? The future is never certain and often cannot be predicted, but at this present moment in time, we can say with absolutely certainty that you are savings money on what you would have normally paid!
We have property on offer in many UK locations, most of them new build, some of those off-plan. It would be impossible for us to showcase them all online as we have thousands of variations. If you would like to get some idea of what we have on offer, please take a look at our Facebook Shop Page.
