Why is the UK residential property market still such a favoured asset for investors?

Residential property in the UK has long been a favoured asset for investors. The reasons for this are plentiful – from consistent demand through to a history of strong capital growth and the ability to generate a regular income.

Article main image

Even throughout the emergence of the COVID-19 pandemic in 2020, residential property maintained its reputation as an important investment consideration due to its evidenced resilience

In a survey conducted by international law firm DLA Piper in late 2020, the UK was named the top global residential property investment hotspot. Of the 500 investors, developers and asset managers surveyed, 33% stated they plan to invest in UK property in 2021. 

And there are several routes available when investing into property, allowing investors to choose a method of investment that best aligns with their personal circumstances and goals.

The well-known buy-to-let option dominated the property investment market for several decades, but there are a multitude of choices today – including the increasingly popular property bonds – many of which offer a more suitable route into property. 

But what makes residential property in the UK so popular, even amidst the uncertainty of the Coronavirus pandemic?


The residential property sector remained resilient throughout 2020 and beyond

As most sectors suffered due to the effects of COVID-19, the housing market surged. 

In April 2020, the Office for National Statistics (ONS) reported that 11 of 14 service sectors endured their largest falls in growth since records began. However, real estate activities was not one of them, with the sector in fact experiencing the lowest fall – other than public administration and defence, which did not decline – at -2.4%.

Though the housing market was forced to partially shut down during the UK’s first national lockdown – with house viewings and moves halted, while construction was allowed to continue under strict social distancing measures – pent-up demand after its reopening caused a welcome housing mini-boom.

Read more:COVID-19 and working from home: the effect on the residential property market

 Rising house prices and exceptional demand was good news for investors into the likes of property bonds, or those renovating homes for the purpose of resale. 

And although the surge was dubbed a mini-boom, with experts uncertain of its outlook long-term, demand among prospective buyers doesn’t appear to be slowing anytime soon. 

Rightmove recently revealed that January 2021 was their busiest on record, as house-hunters spent a staggering 1.6 billion minutes on the site searching for their new home. To put that into perspective, it is equivalent to every single person in the UK spending 30 minutes searching for a new house throughout January.

Against a backdrop of rock-bottom interest rates on cash savings and an extremely volatile stock market, demand for residential property remained – and even excelled – so it’s unsurprising that the asset is a favourite of investors.


A chronic undersupply of housing is an impact investing opportunity for investors

For a rapidly increasing number of investors, financial returns are not the only consideration when choosing an investment. Making a positive environmental, societal or economic impact – aka investing for impact – is also more important than ever.

And residential property can provide the ideal opportunity to invest for impact, allowing investors to support in the development of much-needed housing.

It is estimated that 345,000 homes per year must be built in the UK in order to keep up with demand and tackle the backlog of existing need for suitable housing. But in 2019, just 161,022 new homes were registered to be built. 

Read more:the UK's unmet housing demand presents opportunity for the property-backed IFISA

The Planning White Paper published by the Government in August 2020 – which examines some of the of the key barriers and potential solutions to increasing housing supply in England – highlighted the requirement for small and medium-sized regional housebuilders who are ‘looking to build a diverse range of types and tenure of housing, and those using innovative modern methods of construction.’ 

And these housebuilders need support in the form of alternative finance, after a period of conservative bank-lending in the wake of the 2008/09 financial crisis means access to funding is harder to secure. 

Therefore, with the demand clear and an opportunity to support the supply, experienced investors with the appropriate appetite for risk are able to aid in providing this alternative finance through the likes of property bonds, and in particular, the property-backed Innovative Finance ISA (IFISA)


Property offers multiple methods of investment to help compliment a diversified portfolio

The fact there are various methods of investing into property is another reason the asset is so favoured. It has the ability to be an attractive addition to most portfolios – and lifestyles – whether an investor is looking for hands-off access to the property market, or would like to take a more active role in the maintenance of properties. 

Buy-to-let is arguably the most common and well-known method of investment into property, but changes to taxation which have caused dwindling tax reliefs for buy-to-let investors is seeing its popularity decline. 

As well as this, the costs associated with being a landlord – with expenses such as stamp duty, landlord insurance and general maintenance costs to consider – can be seen as a disadvantage to some, especially as many of these have increased. 

Whilst some investors are happy to contend with the challenges of buy-to-let, other investors are looking for a method of investment into the potentially lucrative asset in a more hands-off manner. For these investors, the property-backed IFISA offers the opportunity to support in the delivery of multiple homes, without ever having to get involved in building or maintenance. 

On top of this, because of the IFISA’s tax wrapper, all returns from a property-backed IFISA are free from income tax and capital gains tax – and these returns have the potential to be higher than most mainstream investment products, usually between 4% and 8%.

When you consider the equivalent rate of return outside of a tax-free wrapper for additional-rate taxpayers could need to be over 14%, it becomes clear how attractive the IFISA can be for property investors.

And with the minimum investment into property-backed IFISAs often being as low as £1,000 - alongside the potential from some to realise returns on a quarterly basis for investors who are interested in a more regular income - it’s understandable why property-backed IFISAs are proving increasingly popular with investors.


Residential property remains a strong investment opportunity

When considering the residential property market’s performance throughout the current pandemic, the opportunities available to invest for impact with property and the numerous methods of investment, it’s clear to see why it’s an asset that remains so favoured. 

Demands for properties – both to rent and for sale – remains consistent, and where other sectors have struggled, residential property has been strong. 

It’s always important to remember that, like every other asset, nothing is a given. But when it comes to property, there’s one thing we can be confident of – there will always be a demand for homes, whether it’s for us, our children or our future generations. And experienced investors will always be ideally placed to continually support the supply of this demand.



The CARLTON Bonds product is available exclusively to experienced investors who are classified as either sophisticated investors, high-net-worth individuals or professional investors and have the knowledge and experience to make their own investment decisions. Investments are high risk and illiquid, your capital is at risk and returns are not guaranteed. Bonds are not protected by the Financial Services Compensation Scheme (FSCS).