What you need to know about property in the UK

Property is not a guaranteed wealth-builder any more

Welcome to the thorny topic of property in the UK.

We’re obsessed with owning property in this country. 

We have a very different culture to continental Europe, for instance, where renting is the norm.

So what’s the best way to approach property in the UK?

Well, the first thing to know is that property ain’t what it used to be.

Here are some sobering stats for you. 

The ratio of house prices to income is 2.5 times higher than it was in 1990, but it's worse than that.

In 1952 the average home in the UK was worth £1,891, which in today’s money would be £46,302 (source). Infuriating isn’t it.

By 1970 the value of the average home had grown to £4,908.

In 1988 it was £58,000.

And by 2024 it had soared to £287,000 (source).

Taking into account inflation, it’s more than 6x the price it was in 1952. 

And in nominal terms (not inflation adjusted), it’s 151 times what it was in 1952 😱

If that trend continued for another 72 years, the average house price in the UK would be… £43.3 million.

Of course that’s not going to happen, which tells us something important - the big growth years have already happened. 

The most recent growth period, from 2008 - 2022, was driven by record low interest rates which gave people the ability to borrow more, so they paid more for their homes, pushing up prices.

But that ridiculously low interest rate environment has gone. We’re now in a much more normal interest rate era - in the last 100 years the Bank of England rate was actually 8.3% which is pretty nuts (source)!

Pulling all of this together, property value is not going to go up at anything like the same rate it has done. You can’t just pick up a property now and in 70 years wake up to a 151 times multiple.

Previous generations were lucky when it came to property but we need to think differently about it - and how we build wealth.

Your property is a place to live - not an investment

A property is not an investment in the same way the stock market is. Your property doesn’t give you a return that you can use, until you sell it.

It’s not liquid (you can’t sell it easily) and it’s not part liquid - you can’t sell a part of your house but you can sell some stocks or even fractions of shares. If you lose your job, your property couldn’t support you financially (but your investments in stocks could, in theory). 

This is why having all your wealth tied up in your home (rather than other assets like stocks) isn’t generally recommended. And actually one of the biggest economic issues we have in the UK is that we have so much of our national wealth locked up in properties, doing nothing.

That’s a debate for another time but it begs the question, what’s the point of owning a home now?

Well, financially speaking, the argument for buying a home today is less about making you rich, but more about not making you poor, over the long term. 

Critically, you want to own your home by retirement. Otherwise you’ll be paying rent - and that will make you poorer, year after year.

If you’re a renter, then you need to take the amount you pay on rent today and multiply it by 25 to give you the rough figure for how much you’d need in retirement just to have a roof over your head. And that’s not even adjusting for inflation.

Imagine the difference between paying nothing in retirement or paying 30% - 40% of your income every month to have a place to live? 

The same principle applies to your mortgage too - you want to have paid that off by retirement so you’re not leaking cash on housing. This is why it’s dangerous to use an interest-only mortgage for too long.

Our first episode on property was with Jason Butler who said something on this point which has stuck with us ever since.

He says the financial rationale for owning a home today isn’t to build wealth. It’s because it forces you to save (paying off your mortgage) to own a thing that you need. You should think about owning a home as a saving mechanism rather than an investing one.

Of course, you can still make money from property, and if you’ve got a lot of money then renting for decades might not be a problem - there are a lot of nuances here. 

What we’re saying is that it's not the guaranteed money maker that previous generations enjoyed. It’s not about getting rich for most people. It’s about needing a place to live - and owning a home by retirement will stop you from becoming poor.

When to rent or buy?

Of course this depends on your circumstances but broadly the decision depends on your timeframes.

A crude rule of thumb is if you’re going to live somewhere for less than five years then renting makes sense, but if you’ll be there for more than five (and definitely ten), then consider buying.

Primarily this comes down to the cost of buying because you have big one-off expenses like stamp duty and legal fees so you don’t want to do it too often.

Besides your timeframes, this decision is also about your values and how you want to live your life.

The main benefit of renting is it offers amazing flexibility, so if that’s something you really value then you can just lean into it.

On the flip side, a lot of people value stability and that’s of course what you can get from ownership.

There is also a hybrid model, which Rob Dix uses. He’s a property investor and friend of the podcast (here’s his episode on the new interest rate environment we’re in). 

He invests in loads of property but he rents his own home.

His view is you don’t need to live in your assets, and he’s absolutely right. He has property assets but they're not his home.

This reinforces what we were saying at the top - try not to see your own home as an investment. 

How mortgages work

Borrowing

There are a few key variables when it comes to the mortgage you can get. 

But before we dive into that, please know that it’s generally best to use a mortgage broker who’s ‘whole of market’. This means you can get access to the full range of mortgages in the UK - rather than going to, say, your bank who will only offer you their own products. There’s a broker we work with mentioned at the bottom.

A mortgage lender will look at a lot of variables but these are the key ones:

• Your income. You can generally borrow up to 4.5x your income but it varies. This calculation is more complicated for self-employed people but for simplicity we can’t go into that here (you can learn more in this episode if you like).

• Your credit score. This measures the likelihood of you repaying - obviously the higher your score, the better. You can check yours for free on ClearScore.

• Your affordability. This is different to you credit score even though they sound similar. Affordability is about how difficult it would be for you to pay for the mortgage. It’s basically about the ratio between your income and expenses (including what the mortgage would cost). You can have a good credit score and enough income but struggle getting a mortgage because a lender thinks you can’t really afford it so could get into financial difficulties. 

You have to put down a deposit on a property, which is normally at least 10% of its value but sometimes less. If you’re a first time buyer, aim for a deposit of at least 10% - 20%.

Besides your deposit, the rest of the value of the property is what your mortgage pays for. This is what results in a term you’ll see a lot - LTV, or Loan to Value. If you borrow £600k on a mortgage of a £1m home, your LTV is 60%.

Generally speaking, the higher the LTV, the higher the interest you’ll pay.  

Types of mortgage

There are a few different types of mortgage but the most common are fixed rates and tracker.

The former is fixed at a particular interest rate for a period of time like 2, 3, 5 or even 10 years, so you know what you’ll be paying.

The latter tracks the Bank of England base rate, with a premium added on top. A tracker mortgage means the interest rate you pay changes every time the Bank of England rate changes, so you don’t know what you’ll be paying in the future.

Remortgaging

The key thing is to start looking into remortgaging 6 months before your deal ends.

It’s always worth looking at the ‘whole of market’ to find the best deal you can get.

How to get a good mortgage

Before you take out a mortgage, you need to come to a view on what’s likely to happen in your life over the next few years and what you suspect might happen with interest rates, so you can hopefully make a good decision.

For example, if you’re going to have a big career change or you’re starting a business, consider getting a fixed rate for five years rather than two so you can build the business and its accounts. You don’t want to be remortgaging in two years because lenders might then see your income is down or your company isn’t solvent which carries risk, e.g. being forced to take the standard variable rate from your current lender because there are no other options.

You also need to consider what you think might happen with interest rates. If you think there’s a high chance they’ll go down meaningfully you might want to hold off pulling the trigger on a fixed deal until they do.

Once you've come to a view, it’s a matter of searching the market to find the best deal.

Honestly though, we recommend using a mortgage broker because they can talk you through all of this stuff so you can hopefully make a good decision. 

Choosing a mortgage broker

We work with Anthony Emmerson from Trinity Financial and we mean this literally. He sorted the mortgage on the property where the podcast is produced, which is why we got him on - you can see his episode here (and it's the video at the top).  

You can reach Anthony here: hello@trinityfinancial.co.uk.

Please look around to find a broker you like, but make sure they’re whole of market and check if they charge fees on top of the fee they’ll get paid by the lender (called a procuration fee). The procuration fee is paid to every broker but the extra fee isn’t.

This is not financial advice. The reason it’s not financial advice is because it’s not tailored to you. We are here to talk about the principles of building wealth but if you want personalised help, it’s worth speaking to a financial advisor. As with everything financial, please do your own research. We really encourage that because no one cares more about your money than you and if you learn the basics then it’s life-changing.

If you get a product through Anthony's company Trinity Financial, we’ll receive a small commission from them but it won’t affect the price you pay.