Keys To The Property Market

With pension schemes approaching meltdown, the stock market experiencing some its biggest swings in years and savings rates being pushed down, a growing number of people are looking to improve their financial fortunes by switching their funds to more secure investment vehicles. The current credit squeeze may be rattling the tiles of the UK housing market, but the sector still attracts hordes of would be investors keen to get a return on their money. The growth in the property market over recent years has been fuelled by a strong economy as well as low interest rates. Despite both of these elements constantly changing and with prices spiralling, a number of routes to market exist for those wanting to invest in property. A tried and tested route is the buy-to-let market, which has seen phenomenal growth over the past few years but has been blamed, in part, for rocketing property prices in certain parts of the country. In 1996, when buy-to-let mortgages were first launched, only 20,000 were taken out. By June 2007, this figure had grown to 940,000 and the total amount borrowed to £108 billion. The concept has been one of the best performing investments around, with many buy-to-let investors having made fortunes as house prices increased and mortgage rates remained low.

Diane Hutchison, who lives in Cheshire, owns a number of properties in north Wales that she rents out both on a long and short-term basis. The part-time actress says: "I started investing in this manner around seven years ago to create some income. With the popularity of it all, I decided to widen my portfolio in order to also create some capital growth, which I have used to buy further properties". However, with interest rates running higher than they have done for some years, some buy-to-let investors are now faced with having to sell properties as the income generated does not cover expenses.

According to the Land Registry, the average UK house price is £184,469, which represents a 60 per cent increase over the past eight years. With house prices increasing at about 6 per cent a year, more and more people are looking to invest in their current properties rather than moving. According to HBOS, the banking group that provides one in three mortgages in the UK, 23 per cent of homeowners elect to improve and extend their current property rather than move. With an average renovation costing £45,000 compared with an average £115,000 additional borrowing most people need when moving house, the numbers electing not to move look set to increase.

For the more adventurous, there is the opportunity to get involved in self-build projects. With a shortage of the right kind of affordable homes, do-it-yourself options are growing in popularity. According to the National Self Build and Renovation Centre (NSBRC) based in Swindon, 8 per cent of all new builds in the UK are of a self-build nature. Mark Harrison, commercial manager of NSBRC, says: "To create a home that is compatible with individual lifestyles is becoming more appealing and is a very realistic option for many people looking to get on, or move up, the property ladder". An increasing number of people are investing their funds in overseas properties with the market now worth £44.4 billion and anticipated to increase by 13 per cent a year over the next four years. For those investors fortunate enough to have a healthy cashflow, investing in property funds on the stock market has been a sure-fire winner for the past few years, but the tide appears to be turning.

Although over the past two years professional and retail investors have piled more than £9 billion into property funds, there has been a run of late, with investors withdrawing large sums from such funds due to insecurities linked to the credit crunch. Peter Damesick, head of UK research at property consultant CB Richard Ellis, says: "There have been so few transactions of late that it is very difficult to work out what has happened to the market, but I have no doubt investors will return to property funds once things become clearer in world money markets". Kate Faulkner, author of the Property Investor's Handbook, advocates the importance of good planning and research when looking for investment opportunities. She says: "Ever increasing numbers of people are turning to property as a secure form of investment and a guaranteed way of making money. Before embarking on such a project though, people should develop a back-up plan should things go wrong, as well as ensuring they get the right professional advice". Whichever way someone wanting to invest in the property market decides to turn, they must first understand their attitude to risk because, to use an old adage, investments can go down as well as up.