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Is buying a home in England a good investment? Guidance for 2023

Kupno domu w Anglii Extend Finance

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When we buy a house, we may not approach it as a long-term investment. We are driven by family needs, emotions or simply the rising cost of renting our existing house. In today’s article, we will look at when buying a home in England could be a good investment for years to come.

buying a home in England Extend Finance

Mortgage for investment property in England

We have written in a number of places on our website that investment property in the UK is financed through Buy to Let mortgages. However, this is not entirely true. Such products are aimed at people who are planning to Buy a house for personal use we can also treat as an investment, after all, statistically property prices in the UK are rising almost constantly, and by living in your own home you don’t have to pay a landlord.

Are property prices in England high?

According to the March 2023 figures, the average property price in England was £365,357. This is 3% more than a year ago. Such an amount translates into a little around 9.26 average annual salary in the UK. A lot, right? Yes and no, because the high property prices in the UK have their justification.

First and foremost, inflation in the UK is well above 3%, and this means that property has fallen in real terms when we compare its prices to the rest of goods. What’s more, houses and flats in the UK have been increasing in value for many years and, according to our observations, this trend is unlikely to reverse. As a result, the price of the property you buy should potencial slowly increase each year (of course, the market can surprise us and we present our private predictions).

Note also that if you don’t buy your own property, you will have to rent it out, and therefore pay off someone else’s investment mortgage. House rental costs are strongly correlated to property prices, so the more expensive the property, the more you may pay the landlord.

Also consider that property prices in the UK are dependent on earnings. Currently, most banks will allow you to borrow as much as 4.5 times an applicant’s annual salary. By choosing to buy a home in England with your partner, you are in a much better position by combining salaries and therefore the average property could be within your financial reach.

What can you do to make buying a home in England profitable?

If you are approaching a purchase with long-term returns in mind, you should consider several factors.

Location and type of property

buying a home in England location
Buying a home in England – location

The price of a property depends on many variables, but some of the most important are the location and the type of house. Large cities such as London, Manchester and Birmingham are particularly convenient places to invest. If you are thinking of buying a home in England, consider the size of the property – large, unusual or poorly designed houses can be attractively priced, but there is a reason for this. If this is the case, finding a buyer may not be easy. The best option would be to buy a 3, possibly 4 bedroom house within commuting distance of the city centre.

Specialist assistance

When you are ill, do you treat yourself? We hope not. If you are looking at buying a home in England as an investment for the long term, use the expertise of real estate professionals. Although there will be a cost involved, working with a mortgage adviser and estate agent will allow you to avoid very costly mistakes.

By using the services of Extend Finance, you will gain confidence that you will not overpay for your mortgage. This is very important because interest rates are regularly rising and with them the cost of financing your property. Our advisers will not only find offers that are as competetive as possible in your case, but will also take into account your preferences in terms of repayment times, your plans to overpay your mortgage, as well as helping you choose the right home insurance.

Don’t underestimate an estate agent either. He or she is not just a middleman – their job is to find a house tailor to your individual needs, give you advice on verifying the condition of the building and choose the most suitable deal within your budget. Although a real estate agent’s services are not cheap, he or she will help you put your money in a sensible place.

Deposit and cash reserve

buying a home in England deposit required

Although buying a home in England almost always involves having a large deposit, it is worth thinking carefully about raising a little more than the minimum required by the banks. The justification for this is very simple – with a 10% deposit, you stand a good chance of getting a much better mortgage deal. How big are the differences?

In the case of HSBC, the minimum deposit is 5% (LTV 95%). If you decide to choose an offer with an LTV of 90% (that is, your deposit will be 10%), we are talking about an interest rate lower by up to 0.13%, which for a 25-year mortgage for £300,000 translates into installments lower by about £115. Curious about the impact of your own contribution on the total cost of your mortgage? Use the Government’s calculator and sample interest rates from HSBC or any other bank.

Buying a home in England involves a number of expenses – stamp duty, legal fees and even moving costs can run into thousands of pounds. If you are not prepared for them, you could find yourself in financial trouble.

Remember that the lower your purchase and financing (mortgage) costs, the more profitable your investment could be. On the other hand, each month’s rent translates into money you leave with the landlord. This is worth considering when you and your family are planning the perfect time to move.

When will buying a home in England pay off?

Buying a property should be looked at long-term. Obviously, the first few years after the purchase will not be profitable for you, because you will simply be paying more. The case is completely different if you analyse the investment over a decade or two. Why?

Every instalment you pay off increases your net worth

Buying a home in England is an investment primarily because it is a potential way of increasing your wealth (net worth). Even if you don’t have children and are in your 50s, owning a property is worth considering. As you pay off each instalment, you increase your share of home ownership. This means that although you will still be paying off the mortgage after 10 years, you may also be increasing your net worth. Simply put, you can always sell your home, go back to renting out your property and if there is any money left, use it to pursue your dreams.

You can also bequeath the property – this will secure your children’s future and relieve them of the cost of renting a flat or house. If they decide to buy a bigger house, it could also be financially easier for them.

Every month you pay off an increasing proportion of your home

buying a home in England saving

Although with fixed-rate mortgages (with a fixed interest rate) the amount of the instalments does not change from month to month, their components do change. At the very beginning of the repayment, you’re giving the bank mainly interest, but over time, you’re reducing the remaining capital more and more.

Let’s face it – just like with renting, by paying interest, you don’t really gain anything. By repaying the borrowed capital, you build up your wealth.

So, when will buying a home in England pay off? In our opinion, such an investment only makes sense when you plan to live in the UK for a minimum of 10 years, and you will gain more and more with each passing year. Of course, it all depends on the mortgage offer, the price of the property and the cost of renting in your area.

Summary

We hope that our article has helped you in your decision to buy a home in England. In our opinion, the best thing you can do is to find out as much as you can about property, both on our blog and during your free and no-obligation consultation with an adviser. Don’t wait, take care of your finances today! Contact us now via the form.

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Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services and some forms of Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts
secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services are not regulated by the Financial Conduct Authority.

Extend Finance nor The Right Mortgage Limited can’t provide advice regarding Personal Pensions, Pension planning or investment planning advice. You must seek independent financial advice from a suitably qualified professional financial adviser who may charge you for advice.

Wills, Will writing, Trusts and Trust planning are not regulated by the Financial Conduct Authority.

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