Putting money into bricks and mortar has long been a popular choice for a diverse range of investors, both institutional and ‘the man on the street’. For many fortunate enough, buying their own home will be the biggest investment they will ever make. Others will build careers on investing in houses built, bought and refurbished for other people to live in.
Investors intrinsically like residential property investments. Houses are tangible, concrete, there to stay. There can be something very comforting about investing in houses. You can see what the money invested looks like, and how it can actually be used and transformed into someone’s home.
In the UK, property as an investable asset class is also built on firm foundations, backed by strong and growing demand. Time and time again, it has proven itself to be fundamentally resilient in the face of all sorts of economic and political challenges.
Market events have tested it, and it always rebounds. Even since the fallout of the financial crash when UK house prices reset to a level last seen in 2005, they have recovered and grown by more than 43% amid further market corrections, economic turbulence – and, of course, the shock Brexit referendum result which gave a whole new world of meaning to the words ‘political uncertainty’.
Until only recently, however, the ways to gain access to investments in housing were relatively limited. For the average man or woman thinking about long-term investments and retirement planning, the only really possible way to benefit from the returns that this asset class can offer was to become a direct landlord.
Since the first buy-to-let mortgages were officially introduced in the mid 1990’s, the occupation of a landlord has grown in popularity. Today the UK’s private rented sector is the second largest type of tenure (behind home ownership) and accounts for more than 20% of all homes, totalling 5.4 million dwellings. Knight Frank predicts that by 2021, that proportion will have risen to 24%, with more and more professional investors attracted to the sector.
But, the life of a landlord doesn’t suit everyone. On a day-to-day level, it can be taxing and time-consuming. Dealing with difficult tenants, burst boilers and unexpected tenancy voids can quickly take the gloss off potentially attractive rental yields. Added to this, buy-to-let has become less appealing to some prospective landlords as a result of moves by the government since 2015 to add an extra 3% stamp duty levy on all second homes and rental properties and reduce the tax relief on offer to landlords.
Against this backdrop – and alongside a interminably low interest rate environment, a near-total cessation of decently paying ISAs and a relatively volatile equities market – it is not surprising to see that new ways for more investors to access residential property investments have started to emerge. Necessity is the mother of invention, after all, and the UK is fortunately home to some of the biggest, brightest minds in investments innovation.
As all aspects of our personal lives increasingly move online, so too does our growing tendency to look for investment opportunities. Just like buying our groceries, booking our holidays and ordering taxis, we’re becoming less inclined to hit the high street for ways to invest our money, preferring instead to do it from the comfort of our desks and deck chairs.
Technology advances don’t just make processes faster and cheaper. The knock-on effect of the efficiencies technology creates is that forward-thinking financial services businesses are able to reinvest revenues in the best products and top customer service, not branches, offices and expensive overheads.
There is growing evidence of new (and old, to an extent) investment platforms rethinking and reassessing how to open up formerly inaccessible asset classes to a greater swath of potential investors. And it’s not all necessarily technologically focused change.
For years, access to house finance investments was the reserve of banks, hedge funds and a handful of ultra-high net worth individuals. But new platforms, like LendInvest, make it possible for a broader pool of investors – individuals and companies alike – to gain access to and see more of the upside from residential property investment in all of its forms.
The ‘democratisation of finance’ is perhaps at risk of becoming an overused phrase, but we are certainly living in a time when technology and innovation are converging to expand the range of investment opportunities available to individual investors.
Christian Faes is co-founder and CEO of LendInvest