Property is one of the most popular investments in the UK – and with good reason. Investing in a house usually represents a sound investment in the future.
Not only should the property increase in value over a long time, but your capital investment (the deposit and mortgage payments) will remain intact, allowing you to sell up and release your money or temporarily re-mortgage when needed.
Investment properties can be flipped and resold, or rented out for profit, while residential properties can be used as collateral against any future investments, loans or business opportunities.
However, for many people in the UK, property ownership is still unaffordable. Last year, home ownership in England fell to a 30-year low, while recent figures from the Institute for Fiscal Studies found that the chances of a young adult on a middle income owning a home in the UK have more than halved in the past two decades.
So, we’ve put together a few ways in which anyone can reap the benefits of the UK property market, without actually buying a house.
1. Investing into Property Funds
Property funds come in all shapes and sizes, so you can shop around and find the option which best suits your risk appetite and interest expectations. Direct property funds – or Real Estate Investment Trusts (REITs) – are the closest thing you can get to investing in a professional property portfolio.
These funds typically buy up commercial or residential real estate in various parts of the UK and Europe, then share any profits (either from resales or from rent) with investors. The idea is that investors will benefit from the diversification of the portfolio, so if one property is unoccupied for a while, its loss can be offset by better-performing properties.
However, the nature of the property market means that direct property funds and REITs are the first to be affected in the event of a property crash.
Indirect property funds, on the other hand, invest in the shares of firms that operate in the property and property development sector. This means that their performance runs in a similar way to standard equity investments, with high liquidity as well as a higher risk of volatility.
Examples of well known funds and reits:
- L&G UK Property
73% of assets are in physical property.
50% compound over 5 years
- First State Global Property Securities
Direct property funds and REITs.
- Secure Income REIT Plc
Has assets which include hospitals, Travelodge hotels and visitor attractions like Alton Towers & Thorpe Park.
2. Investing into Property through Stocks and Shares
If you feel optimistic about the UK’s property sector but can’t afford to buy a house outright, you may be able to mirror the market through a stocks and shares portfolio.
You can invest in construction companies (e.g. Balfour Beatty), real estate firms (e.g. British Land Company), social housing providers (e.g. Civitas), and even estate agents (e.g. Foxtons).
Alternatively, you can invest in an exchange traded fund (EFT) which tracks the performance of the entire property sector, with minimal fees.
However, before investing in any stocks and shares portfolio, it is essential that you do your homework. The value of these investments can fall as well as rise, so your capital could be at risk at some point.
You can offset this risk by diversifying your portfolio, but you will incur fees for every trade or transaction made. If you have any concerns about investing in property stocks and shares, it may be best to speak to an advisor or a stockbroker.
- British Land
3rd of portfolio consists of London office space.
3. Invest in Peer to peer Property platforms
Over the past two years, a slew of peer to peer (P2P) property platforms have emerged.
P2P lenders can rival many mortgage providers in terms of the rates they can offer to borrowers, and the platforms’ lenders can benefit from higher rates of return – in some cases as high as 12 per cent. What’s more, these investments can be made within an Innovative Finance ISA, which protects any returns from taxation.
Investors can choose to invest in P2P platforms specialising in buy-to-let properties, residential properties, and commercial properties, but each platform comes with its own credit risk procedure.
For instance, asset-backed properties are likely to be lower risk than those properties where collateral hasn’t been offered – but similarly, they may offer lower returns to investors. Before investing in any P2P property platform, make sure you do your due diligence and understand the risks involved.
- Landbay – Property-Backed ISA
Innovative Finance ISA
3.54% Fixed Rate over 5 Years
Variable Rate – but achived 8.7% in 1st yr of one fund.
Minimum investment: £100
ISAs or Bonds Available.
- Landlord Invest
Up to 12% returns based on performance
Innovative Finance ISA
- The Property Crowd
- Blackmore Bond in IFISA Wrapper
Invest into a bond in tax free ISA wrapper.
Bond invests in UK property development.
Fixed rate 8.5% over 5 years.
Not for retail investors – Min £5,000.
Up to 5.35% IFISA
8-12% per year
up to 10%
4. Investing into Property Bonds
Property bonds are usually issued by developers who are seeking funding for an ongoing building project.
Investors will help fund the project, and in return they will get a fixed return for the duration of the loan. This fixed return is a big attraction for investors, with rates typically within the 4-8 per cent range.
Another benefit for investors is that property bonds tend to have a relatively short term time, so your money is not tied up for years on end. In fact, if you opt for a mini-bond, you could even get your capital back within a few months.
However – as with P2P lending – if the property developer defaults or goes bankrupt, your capital could be at risk.
- Blackmore Bonds – Property MiniBonds
8.50% over 5 Years
or 7.50% over 4 Years
- Property Crowd – Crowdfunding Bonds
A mixture between crowdfunding and bonds where investors choose the project.
Rates are variable and depend upon success of project.
Minimum investment of £1,000
5. Invest into Property via Crowdfunding
Increasingly, homeowners are turning to crowdsourced solutions to sell or buy their properties. This has resulted in a boom in crowdfunding property sites, which allow people to invest with as little as £1.
Property crowdfunding works by pooling the resources of a number of small-scale investors and using this money to buy a rental property, or a share in the development plans of a newbuild project. The crowdfunders then share any returns. The risk factor will vary from project to project, so it is worth taking some time to read the small print before you pledge any money.
Similarly, some homeowners have turned to raffles as a way of selling their property,. If you get (very) lucky, you could ‘buy’ a house for as little as £5 simply by buying a raffle ticket.
However, as with most ‘too good to be true’ investments, there is a lot that can go wrong here. Crowdfunding and property raffles are not heavily regulated, which leaves investors with little recourse if the investment goes south.Last updated: May 25th, 2018