Banks are still offering rock-bottom interest rates
Investors in the UK and EU, who are thinking of keeping their money in a savings account will be hard-pressed to find banks offering more than 2.5% interest according to the latest figures from moneysupermarket.com. Obviously, this will be a disappointing return for those who have worked hard all their lives and want to build a nice retirement fund.
Blue chip defensive stocks also only have interest rates of around 3% in companies such as Unilever and Diageo PLC. This rather paltry return is not exciting for those with savings; neither option is.
Low interest environment allows landlords to take our mortgages and still attain good rental yields
In July, gross mortgage lending in Britain was up 9% year-on-year according to UK Finance. The number of approvals has also increased from 75,105 in June to 77,786 in July. Mortgage interest rates have also been slashed to entice the smaller buy-to-let market, with the Post Office being the latest lender to introduce a two-year fixed rate of 1.33pc, its lowest ever according to mortgage comparison site, Moneyfacts. These low interest rates allow investors to achieve a good yield on property investment as the cost of repaying the mortgage is lower and this is offset by rental income.
Older investors may already own their own home outright. According to Census data from 2011, three quarters of those aged 65 and over own their own home, 72% of which are either three bedrooms or more. Some of these owner-occupiers may be looking for retirement income to supplement their pension and ensure a more comfortable life, and may be eager to downsize to a more manageable property. With the additional equity that can be released individuals may consider investing in more property. Bearing that option in mind, what are some high yield investment options?
Retirement property investments – high yielding property in a hands-off environment
Retirement property investments offer high yearly returns of more than 8%, for a guaranteed number of years. These are ideal for overseas investors who cannot afford the time to perform general maintenance tasks associated with more traditional buy to let properties as they are operated by a management company. The process involves the investor buying a unit in the retirement home, and then leasing it back to the management company for a yearly cost.
Retirement properties can fetch high yields if they accommodate self-funded residents. Profitable retirement homes are often luxurious, and individuals choose to stay there do so for the social experiences and community feel, rather than because they require nursing care.
These types of homes are in desirable retirement spots, such as the south west by the coast or the Isle of Wight. These areas are typically attractive to retirees, as they offer a temperate climate, idyllic countryside and a slower pace of life.
Retirement homes such as Sandown Caring Communities in the Isle of Wight offer investors returns of 10% for ten years, with buy back options in year 5 for 110% and year ten for 125%. Income is paid monthly, and investors have the flexibility to choose how they receive it.
Sandown Caring Communities comes fully-equipped to entice retirees seeking luxurious living standards. Amenities include a salon, cinema and a pool overlooking Sandown’s picturesque beach. Nursing staff are available round-the-clock to accommodate residents’ needs, and the retirement home welcomes short-term and long-term residents alike.
These types of investments have been extremely well-received by investors, and the developer’s previous projects have sold out rapidly. Suites in Sandown Caring Communities are available for purchase from £89,950 and investors can reserve a unit from just £2000. Retirement home investments are resistant to economic or political changes as it’s not possible to supress an ageing population and their requirements. An older person needing assistance with personal tasks is not going to be stifled by Brexit negotiations.
Student property – An investment class still popular with large investors
It is understandable that with Brexit and the fall in the number of EU students applying for places at UK universities, investors perhaps have disregarded student property investments. Student accommodation can still generate a good rental yield however, if a prudent approach is taken.
Some cities have high percentages of EU students, and the appeal of prestigious universities such as Oxford or Cambridge will not wane, regardless of whether students have to pay higher tuition fees. Likely, this would be at the expensive of other universities that are popular with EU students, such as Coventry (8.1% EU students) and Bath, (7.2% EU students) according to a recent report by KPMG.
Investors can instead choose universities with a lower percentage of EU students, such as Sheffield (2.9% EU students). These universities will be less impacted by the fall in EU application numbers, and therefore accommodation in the city will not experience gaps in occupation due to a shortage of students.
Oakwood House is one such Sheffield student accommodation investment, close to both the University of Sheffield and Sheffield Hallam University. Furthermore, Sheffield’s major attractions, pubs and shopping facilities are just a short walk or tram ride away which allows students to experience the very essence of the city. Each room boasts an en-suite bathroom, and according to Knight Frank, students are persuaded to spend over £160 per week on their accommodation if it offers these sorts of premium features. Units in Oakwood House can be purchased from £59,950 and the developer is offering a net yield of 8% guaranteed for three years because they are so confident that the units will be popular with students.
The fall in the value of the pound – the rise in the number of tourists?
Perhaps a previously unconsidered benefit of Brexit and the subsequent fall in the value of the pound; Britain is now a more attractive destination for tourists. It isn’t just London that tourists flock to either, Liverpool has a particularly booming tourism industry. Home to The Beatles, Liverpool F.C., Everton F.C., the Albert Dock, Tate Liverpool and a host of other museums. It also has a large port, and thousands of people stop off at Liverpool to explore the city before continuing their onward journey.
According to Liverpool City Region, last year the city welcomed sixty-two million visitors to the region and the economy is now worth £4.3bn. In the UK, it is the fifth most visited destination for overseas tourists, and hotel occupancy grew by almost 2%. The usage of serviced apartments increased the most – by 6.4%; which indicates that tourists are increasingly opting for more flexible accommodation.
The appeal of the Liverpool serviced apartment is apparent, they are around 15-30% cheaper than hotel rooms, offer more space and can be used for the longer-term if required. One such development is Sir Thomas, situated in Liverpool’s city centre. Its prime location allows tourists to navigate the city and its attractions with ease, and it’s close to train stations and bus stops so tourists can continue their onward journey with minimal stress. Units in Sir Thomas start from £84,262 and a net yield of 8% for two years is guaranteed.
Traditional buy to let still lucrative – if you find the right location
Even though people pay high rents in cities such as London, houses are expensive which in turn means that the rental yield that can be achieved is relatively low. Despite house prices generally being on an upward trajectory across the UK, high rental yields can still be achieved if you seek out places that are still affordable. Places in Yorkshire such as Hull and Rotherham saw the biggest increase in average rental yield in Q4 2016 according to property peer-to-peer lender Kuflink.
Cheapside Chambers Bradford is a renovation of an existing period building in Bradford’s city centre. Units in Cheapside Chambers are available from £49,800, well below the area guide price of £55,000, allowing investors to achieve more lucrative yields. Property prices in the area have been rising and with the completion of The Broadway shopping centre and recent regeneration of the city centre, they are expected to rise further. This is an excellent opportunity for an investor looking to achieve good capital growth in the long-term whilst also enjoying a healthy rental return.
Property: a stable investment option?
As we have previously mentioned, banks offer disappointing interest rates that would not serve someone wishing to grow their capital well. Blue chip defensive stocks also offer meagre returns, and some other investment options that offer higher returns carry with them a significant amount of risk such as Land Banking.
Investing in property in the UK has always been a popular option, due to the stability in the market. Despite additional rules and regulations being introduced (such as additional stamp duty charges), it remains a profitable market to invest in.
Investors who have concerns with how stamp duty increase can affect the profitability of their property can consider commercial investments such as student property and retirement home investments. These properties are exempt from stamp duty if the price does not exceed £150,000, making them a great option for people wanting to achieve strong rental yields.
One Touch is a property investment company, providing property investment advice to individuals on suitable options that will allow them to achieve their financial goals. Contact us to discuss your requirements and available projects on the form below.