The prospect of investing your hard-earned money can be daunting, especially for those relatively new to it, but perhaps more-so after the events of the last 12 months. However, while 2020 has shown the impact external factors can have on the economy, it’s also reinforced the resilience of certain investment assets, notably bricks and mortar.
For investors looking for long-term capital gains, 2021 is arguably an opportune time to consider property, and there are three key reasons why it could work out to be your best decision this year.
The global pandemic acted as a catalyst for many unprecedented changes throughout the past 12 months, forcing Brexit into being a near afterthought for society. But as we endure our third national lockdown and continue to navigate our first year outside of the European Union (EU), now is an ideal time for investors to take stock of the past 12 months and start to consider their moves for the year ahead.
Whether you are looking to begin your investment journey, or expand upon your existing assets, there are three key factors that will help define whether now is the right time to look at reinvesting in the market.
Low interest rates
The measures taken to combat Covid-19 have been detrimental to many businesses and industries in the UK. But with two vaccines now in circulation, there is hope for a quicker recovery of the economy.
In a bid to help boost a recovery, we’ve seen the interest rate reach a staggering low of 0.1%, to encourage consumer borrowing and spending. For investors, this has presented itself as an opportunity.
Those who previously only aspired to property investment may now find themselves in the position where this is possible, with affordable mortgages being much more accessible as lender confidence grows.
While Brexit has been a point of contention for some investors since 2016, a final exit from the EU with a free trade deal in place has restored some certainty and minimised the short-term impact of Brexit on the economy. But there are still elements to take into consideration.
Perhaps one of the most anticipated changes to come from Brexit is the expected fluctuations in the value of the pound - although forecasts do not predict any drastic changes. Increases in the value of the pound in the long-term is likely to benefit investors, with a stronger economy meaning a better rate of return on investment assets.
Return on resilience
Return on investment is an obvious factor for both new and seasoned investors. And if 2020 has taught us anything, it is the resilience of certain investment assets over others, that have delivered the returns.
For instance, Bitcoin has been on the rise in recent years, positioning itself as a somewhat desirable investment. However, in March of last year, we saw this cryptocurrency crash.
With the global presence of Bitcoin, combined with the rapid spread of Covid-19 across the world (and especially China), this led to the value of a single bitcoin plummeting to below $4,000. We saw many fear a ‘crypto wipeout’ as investors’ profits dissolved.
With the property market having already endured, and adapted to, the 2008 financial crash, the industry has continued to demonstrate great resilience throughout numerous national lockdowns and extensive restrictions.
The property market didn’t just survive the pressures of Covid-19, it thrived.
Towards the end of 2020, we saw the average property price reach an all-time high of £250k, with demand soaring upon the reopening of the market.
These chart-topping prices follow the consistent increase in property values we have seen over the past 10 years - bar momentary dips, providing investors with an exceptional rate of return on their properties.
The resilience of an investment asset during turbulent times is key when evaluating risks to help calculate and maximise the rate of return.
Most wealth managers will tell you that the key to a successful investment strategy is the diversity of your portfolio. Having a variety of assets means investment risk is significantly lowered, decreasing your reliance on the performance of a single market. We have consistently seen that single assets do not match the performance of a diverse and well-balanced portfolio.
For those just interested in property investment, diversification can be achieved with a single asset. One portfolio could include different types of property or include the same property across several different regions, or both. The luxury of this diversification is having more tangible investment assets without being tied to one market.
The property market has withstood two recessions over the years and regardless of what might happen in the short-term, will likely continue to go from strength to strength beyond 2021.
2020 was a big learning curve for society and the economy, but it provided invaluable insight into investment assets and key external factors. Heading further into 2021, interest rates, return on investment and diversification remain our top three priorities for prospective investors to consider.
With the property market showing great resilience through a challenging economic period and providing investors with a diverse portfolio, it continues to present itself as a reliable investment asset for 2021 and beyond.
*Andy Foote is a director at SevenCapital and an established property investor himself