Whenever you buy a house for sale in the UK, it can involve a lot of things like evaluating the market, evaluating the rents for the area and considering the factors that will make the price of the house go up or down.
This is because the purchase of a house is often stretched out over a number of years in a mortgage and most buyers look to make money on their investment in the form of capital appreciation or collecting rental income.
What you buy your house for depends on your needs as a buyer but ultimately, a lot of the checks you will have to do on a property and what you will need to know are the same. So read on for an in-depth guide on buying a house for sale so you can make the most optimal decision for you.
How to find a house for sale in the UK
The first thing of course is to find a house in the UK. In order to do this, you must determine what area you are most interested in and look from there. This can involve speaking to estate agents, going on their websites and checking out online listing platforms like Rightmove or Zoopla.
Having said this, there are also deals on the property market that aren’t being advertised so it is also worth asking around and networking in the area to see if you can find any off-market deals. You often will be able to forgo paying real estate agent fees as a result.
Most property purchases will come from listing platforms though so bear this in mind when looking and make sure you check these platforms every day and work with your estate agent frequently as new properties and new prices can be listed every day.
What are the types of houses for sale in the UK?
As you may guess, there is a range of types of property in the UK and as a result, they will be priced in different amounts as they are more or less desirable to homeowners. Typically, the most expensive type of property is a detached house because they tend to come with more land and be away from neighbours. Ideal for most homeowners seeking a secluded environment.
On the other end of the scale, terraced houses are most of the time the least spacious and share walls with neighbouring houses on either side. In addition, it is common for garden sizes to be smaller and there usually will be no outdoor space on either side of the property either.
In order of smallest on average to largest on average here are the lists of types of housing in the UK:
- Detached houses
- Semi-detached houses
- End of terrace house
- Terraced house
There are other types of homes like mobile homes or those living in boats but this is something that is quite rare for someone to do aren’t conventional homes that apply to property laws like Stamp Duty for example so they are excluded from this list.
Do HMOs or Single lets have higher rental yields?
HMOs overwhelmingly have higher rental yields. This is because they are Homes of Multiple Occupancy so the landlord can rent out each room of the property in multiple tenancies rather than charge just one.
As a result, a lot of landlords invest in HMO properties to get the most out of their investments. They have to follow different regulations such as HMO licensing but for many landlords, it is worth it because of the additional rental income they can produce.
With the high demand for housing in UK cities, it is rare that a landlord will struggle to fill a room in a HMO if they price it correctly. A lot of renters choose to miss out on living in a whole home for cheaper rents.
How to assess a real estate investment before looking for a house in the UK
In order to make sure the investment a landlord makes is able to make money, thorough research has to be done on the property and there will typically be a few key things the landlord will be looking for before they decide to go ahead and buy the house.
All of these factors can be looked at to give a broader depiction of the investment and from here a landlord can determine whether it would be a good decision to purchase the house, using what type of financing and with what kind of budget needed.
Experienced investors will be well versed in this particular side of the property market, making decisions based on numbers and analysis rather than more emotional decisions like if the property was being bought for a home. Here are the factors below.
Look at the number of house sales in the area
This figure can be assessed based on the number of house sales in the area per year or per month but ultimately, a landlord wants to determine if there is a lot of buyer demand in the area. It may be the case that there is high buyer demand and a limited supply of houses, in which case the price of any property bought in this area would naturally go up over time.
However, a landlord can still make good money buying in an area with low buyer demand and benefit from the higher rental yields. For example, a city like Sheffield has low buyer demand and high rental demand. If you were to buy a property in this area, chances are the house value will not go up by much if at all.
Nonetheless, because of the higher rental demand in the area of Sheffield, the rental income a landlord can produce relative to the value of a house is extremely high. It is common to produce properties with yields as high as 11% – 13%. In contrast, the rental yields for a property in London will be considered good at around 4%.
What is the trade-off between an asking price and the sold price of a house?
Whenever a property owner lists a house for sale, they have to understand that if they want the property to be sold quickly with little effort, they will have to price the house well below market value and the more the property is below market value, typically, the sooner it will be sold.
As a result, the seller must find a balance between the asking price of the house listed for sale and the actual value of the property which would be the sold price. For example, if a seller wants to squeeze out every bit of value from the home and lists the property above market value, it may take months to years to sell.
As a buyer, you must understand this process too because you can guess what kind of price the property in question will sell for.
For example, a property you can see has been on the market for some time, is likely to sell for a price very close to what they’re asking. Having said this, a property that is listed at a fair valuation and new to the listing market can be sold straight away with a slightly below-market value offer if the seller wants to move quickly.
Understanding this well as a buyer can help you secure below-market value deals and make the most amount of return on your properties by securing a deal at a lower price.
Why is the asking price per square foot always higher than the sold price per square foot?
When sellers have had their property on the market for a while and want their property to be sold soon, they will accept a lower offer than they wanted in order to move the deal on and move on in the buyer chain.
A lot of sellers are waiting for a property to sell so they can confidently buy a new one so it is often important they get the property sold within a set time period. Therefore, the asking price of a property is often above what the property actually ended up selling for.
Evaluate the average rent for the area
The next step a buyer must take when evaluating whether a property is a good investment is to find out what the average rents are in the area. If a buyer also does more specific research, they can determine what the rent will likely be priced at for each room in a property based on the condition of the house and the size of the room.
This will result in the buyer being able to make accurate predictions as to whether a property will make money or not and if the investment will be profitable based on the requirements of the buyer.
Consider factors about the local area’s demographic
The demographic factors of the area of a property are less important factors but ultimately, they still impact the price of a property and the capacity of a house to produce a return on investment.
They relate to the population trends of the area, the crime rates, and factors like the number of acres of green space that is available for residents. These things make an area more or less appealing and will impact the price of rents and the buyer demand in the area and hence the appreciation of a house.
The change in population in an area is perhaps the biggest factor in pushing up house prices aside from the location in general. This is because the more people there are who want to buy, the higher property prices will climb.
A population can change because of emigration or immigration as a result of industry change in the area or a changing buyer sentiment in an area. For example, the population of Kent went up from 2020 – 2022 because people’s interest in the area went up as a result of them not having to work within London because of the addition of more remote work and hybrid roles in the capital.
Crime rates not only deter people from areas because of the safety aspect and the sense of security people want to feel when they buy a home but also because the area in places with higher crime rates tends to become less desirable as a secondary effect.
As an example, areas with higher crime rates also tend to suffer from higher rates of unemployment which results in less buyer demand for houses in the area which produces less capital appreciation.
Or, there are other more specific examples like areas with higher crime rates having to have higher prices for home insurance or higher prices for general security, deterring people from living in the area.
The type of crime that is committed in the area is also extremely important. If there are a lot of burglaries, this will affect a homeowner more directly than if there was a lot of online fraud for example. So when buying a house, look at the type of crime being committed and also visit the property you are interested in buying to monitor the surrounding area at different times of the day.
Amount of green space
The general guideline set out by the UK government for the amount of green space that all residents should have is 6 acres of green space per thousand people. For more on this figure was determined click here.
This number is generally quite subjective because it depends on how green the area is in general, for example, there could be trees and hedges in urban environments that compensate for the lack of dedicated green space. Also, the quality of green space makes a large difference too.
All in all, green space is desirable but strictly depends on the specific desires of a tenant. So, it is best to generalise and acknowledge that there will be some tenants who really care and some who don’t and factor this in the purchase of a home.
How should you calculate the rental yield of a property in the UK?
You will need two figures to begin calculating rental yield. These are the rental income and the property value. The property value can be an estimated value of what the property will sell for or it can be the actual value a house has been sold at. It all depends on where on the buyer journey you are.
Take the annual gross income of a property by multiplying the monthly rental income by 12. Next, deduct any property expenses such as the mortgage payment, home insurance and maintenance costs from this rental income figure to find the net rental income.
Finally, divide this number by the purchase price of a property and multiply it by 100 to find the percentage of the rental yield of a property. If you have calculated this right, typically, the rental yields for houses in the UK fall in the range of 2% – 14%.
What does the rental yield of an area tell you?
The rental yield of an area lets a buyer know what the rent price is like relative to the value of a house. This is important because it gives a good indication of the kind of return on investment a buyer can make.
It is important to note that this is only an indication and in order to find a figure that directly compares with return on investment if your money was in a bank for example or tied up in another investment would be to look at the Return On Capital Invested (ROCA). To find out exactly how to calculate this click here.
What is it like buying a house in your local area?
As you buy a house in a local area, taking into consideration as many of the factors as you can to make the best investment decision is essential to make an intelligent buying decision. Below is a list of the cities where you can buy a house, with links to access each city’s own unique data.
- Other cities of Greater London
- Other cities of East Midlands
- Other cities of East England
- Other cities of North East
- Other cities of the North West
- Other cities in Scotland
- Other cities of the South East
- Other cities of the South West
- Other cities in Wales
- Other cities of the West Midlands
To conclude, buying a house in an area that you want is a tricky process, especially when there are so many cities to choose from and multiple different factors to look at to make sure the property will appreciate and if you decide to rent it out there is rental demand.
At the end of the day, buying a house is one of the biggest decisions most people make so go through the buying process carefully and don’t be afraid to seek out additional information about the demographics of the area or question property professionals such as estate agents along the way.