How to Invest in Property in the UK | Step-by-Step (2024)

Real estate investments are not limited to buying physical property. In fact, there are several ways of gaining exposure to the property market without securing a mortgage.

This guide will present various direct and indirect methods for investing in property in the UK, delve into the pros and cons of each strategy, as well as recommend the best UK brokers to consider should you decide to invest indirectly.

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How to get into property investment in the UK?

Property investment can take various forms and can be done through direct or indirect methods.

Direct real estate investment is the process of purchasing, owning, and managing physical property. This method aims to achieve a positive return on investment through rental income and/or capital appreciation. and involves investments in:

  • Residential homes;
  • Buy-to-let properties;
  • House flipping.

Indirect property investment, on the other hand, offers a more hands-off approach to real estate investment. So, instead of investing directly in a property, you invest in:

  • REITs;
  • UK property funds;
  • UK property-related stocks.

How to invest in property in the UK?

If you’re interested in investing in real estate in the UK but want to avoid the complexities of owning physical property, you can invest indirectly. In that case, you’ll need a brokerage account to buy REITs or property-related stocks or engage in contract for difference (CFD) trading. While numerous online platforms are available, the one that suits you will depend on your investment style (long-term buy-and-hold strategy or a more active swing or even day trading approach) and needs (e.g., whether you want to trade on margin).

After depositing funds into your account, you can select the property-related assets that match your investment preferences and execute the transaction via your broker’s platform.

To securely invest in property in the UK, consider eToro, which offers the following:

  • Commission-free stock and ETF trading;
  • 3,000+ stocks from 17 exchanges;
  • Fractional shares available;
  • Commodities trading;
  • CFDs trading;
  • User-friendly platform.

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  • Invest in 2,800+ stocks and other assets including 70+ cryptocurrencies and commodities.

  • 0% commission on buying stocks - buy in bulk or just a fraction from as little as $10.

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eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. eToro USA LLC does not offer CFDs, only real Crypto assets available. Don’t invest unless you’re prepared to lose all the money you invest.

How to invest in property in the UK with eToro: Step-by-step

  • Step 1: Create an eToro account and complete the verification process;
  • Step 2: You have to fund your account before you can start investing. Several deposit methods will be available to you, including linking your bank account, using a debit or credit card, as well as employing third-party payment methods like PayPal, Neteller, or Skrill;
  • Step 3: Navigate to the stocks or ETFs market and input the ticker symbol for the REIT (or REIT ETF) or property-related stock;
  • Step 4: Click ‘buy’;
  • Step 5: Input the desired cash amount or number of shares for your trade;
  • Step 6: Review and adjust the stop loss, leverage, and take profit settings;
  • Step 7: Click ‘open trade.’

Next, let’s look at the different types of property investment methods in greater detail, starting with the most accessible, i.e., indirect property investments.

Real estate investment trusts (REITs)

Real Estate Investment Trusts are pooled property investment funds that own, manage, or finance income-producing real estate. Like stocks, REITs are traded on major exchanges like the London Stock Exchange (LSE), making them the most liquid real estate investments available.

Since their introduction in the UK in 2007, REITs have grown substantially, with approximately 50 trusts now listed on the London Stock Exchange, covering various specialized property sectors such as commercial, residential, and healthcare.

For a company to qualify as a REIT in the UK, at least 75% of profits must derive from the property rental business, and 75% of its assets must be engaged in the property rental business.

REITs are exempt from corporation tax on rental income and revenue generated from the sale of rental properties. In return for these tax benefits, REITs are required to distribute a minimum of 90% of their annual profits to shareholders as dividends, making them particularly appealing to investors looking for passive income avenues.

To invest in REITs, individuals can purchase the shares of the REIT companies directly or invest through exchange-traded funds (ETFs) that track a group of REIT companies.

Some of the largest REITs in the UK include Segro PLC (LSE: SGRO), Land Securities Group PLC (LSE: LAND), and British Land Company PLC (LSE: BLND).

Pros and cons of investing in REITs in the UK

How to Invest in Property in the UK | Step-by-Step (3)

Pros

  • Stable cash flow through consistent dividend payments;
  • Highly liquid;
  • Diversification (low correlation to stocks and bonds);
  • Access to real estate for minimal cash outlay;
  • It takes the manual work out of owning property.

How to Invest in Property in the UK | Step-by-Step (4)

Cons

  • Limited capital appreciation as only 10% is reinvested into the business;
  • Dividends are taxed as regular income;
  • Hypersensitivity to interest rates;
  • Potential for high management and transaction fees.

UK property funds

A similar option to a REIT is a property fund representing a type of investment fund that either invests directly in real estate or in shares of companies associated with property.

In the UK, two IA (investment association) fund sectors are devoted to property: the IA UK Direct Property sector, comprised of UK property funds that invest directly in real estate, and the IA Property, which includes funds that invest in foreign real estate or shares of property companies.

In contrast to REITs, property funds gain value via appreciation and typically do not offer investors short-term income in the form of dividends. That said, property funds in the UK can provide a broader selection of assets (and therefore greater diversification) than purchasing individual REITs.

Pros and cons of investing in UK property funds

How to Invest in Property in the UK | Step-by-Step (5)

Pros

  • Low barrier of entry;
  • Ready-diversified property investment;
  • Hands-off property investment.

How to Invest in Property in the UK | Step-by-Step (6)

Cons

  • Heavily reliant on economic conditions;
  • Lack of cash flow in the form of dividends.

UK property stocks

Investing in property-related stocks is another way of getting exposure to the property market in the UK and can be done quickly through your chosen investment platform.

Luckily, UK property stocks encompass a broad spectrum of companies, ranging from home construction companies like Persimmon (LSN: PSN) and Taylor Wimpey (LSE: TW) to raw material suppliers like Ibstock (LSE: IBST) and Marshalls (LSE: MSLH) as well as property portals such as Rightmove (LSE: RMV).

Pros and cons of investing in UK property stocks

How to Invest in Property in the UK | Step-by-Step (7)

Pros

  • Exposure to the property market;
  • Ability to self-construct your portfolio;
  • High liquidity;
  • Eliminates the manual work out of owning property;
  • Low barrier of entry.

How to Invest in Property in the UK | Step-by-Step (8)

Cons

  • Only indirect exposure to real estate;
  • Investing and keeping track of a portfolio of individual stocks demands considerable expertise in the specific sector as well as the stock market.

Note

By taking out a stocks and shares ISA, investors can shelter up to £20,000 of their investments each year tax-free.

Residential home

Buying your own home is the most common way for Brits to invest in real estate. This is generally done by taking out a mortgage and gradually building up equity (the difference between the property’s value and the amount owed to the lender). So, as long as property values increase, homeowners can capitalize on this equity when they decide to sell.

For instance, the average annual percentage increase for houses in the UK was 5.5% two years ago. Yet, it’s vital to note that the average annual returns will be considerably less juicy when mortgage interest payments, maintenance expenses, repair costs, and insurance are taken into account.

Note

The government provides aid to potential buyers through various homeownership programs such as shared ownership and the Mortgage Guarantee Scheme, as well as help with saving up through the lifetime ISA.

Pros and cons of buying your own home

How to Invest in Property in the UK | Step-by-Step (9)

Pros

  • Potential for appreciation;
  • Building home equity;
  • Available tax and expense deductions;
  • Government assistance for homebuyers.

How to Invest in Property in the UK | Step-by-Step (10)

Cons

  • Various expenses for upkeep, insurance, property taxes, as well as mortgage interest;
  • Illiquidity;
  • High upfront costs;
  • Possibility of value deprecation.

Buy-to-let properties

A buy-to-let property investment involves purchasing a property to rent it out. Rentals can offer steady cash flow and the possibility of appreciation over time. However, they are one of the most labor-intensive property investments.

For example, maintenance costs can quickly rack up if the building itself is old, or it can be hard to find reliable tenants. However, property management companies like Howsy can help with the upkeep for a low monthly fee, and rental search engines likeRentolacan help landlords connect with tenants globally. Such tools can help landlords manage their investments.

Despite this, there are some key things to consider. First, distinct rules govern buy-to-let mortgages compared to mortgages for primary residences. For instance, the expected monthly rental income must be 125-145% of your mortgage repayments.

Moreover, interest rates for buy-to-let mortgages typically exceed those for residential mortgages, given their classification as a commercial investment product. The deposits required are also generally larger, with a minimum deposit of 25% (up to 40% in some cases) typically required for buy-to-let mortgages.

If you’re already a property owner (including your primary residence), a Stamp Duty surcharge typically applies when purchasing additional properties. For properties valued over £40,000, the second home surcharge is 3% in England and Northern Ireland, 6% in Scotland, and 4% in Wales. This surcharge is in addition to any standard Stamp Duty that applies based on the property’s price.

Moreover, it can be difficult to

Pros and cons of buy-and-let properties

How to Invest in Property in the UK | Step-by-Step (11)

Pros

  • Potential for steady income;
  • Properties usually increase in value;
  • Many expenses are tax-deductible.

How to Invest in Property in the UK | Step-by-Step (12)

Cons

  • Managing tenants and ongoing maintenance costs;
  • Potential tenant damage to the property;
  • Unoccupied properties can lead to financial losses.

House flipping

House flipping is on the riskier side of real estate investment. This strategy involves purchasing a property, enhancing it through renovation or refurbishment, and subsequently selling it for a profit or renting it out in return for an income stream.

To successfully flip properties, it’s crucial to be able to identify profitable opportunities and evaluate the potential return on investment after accounting for all costs, including those associated with renovation and administration. Generally, investors with substantial capital and a strong understanding of real estate valuation, marketing, and renovation practices are better equipped to thrive in this arena.

Pros and cons of house flipping

How to Invest in Property in the UK | Step-by-Step (13)

Pros

  • Ties up capital for a shorter period;
  • Potential for quick returns.

How to Invest in Property in the UK | Step-by-Step (14)

Cons

  • Demands substantial experience and proficiency in real estate valuation, marketing, and renovation;
  • Hefty out-of-pocket costs.

In conclusion

Investors looking to invest in properties in the UK have various options for many kinds of budgets. For example, if you prefer a more hands-on involvement, consider property flipping or becoming a landlord. On the other hand, investing in REITs could be an ideal solution if you want to put less money down and be less involved.

As with any investment, remember to keep your expectations realistic and do your homework before making decisions.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

FAQs about how to invest in property in the UK

How to invest in property in the UK?

Aside from buying properties directly for living, renting, or flipping), investors can opt for indirect investments by buying shares of REITs, property funds, or property-related companies.

How to invest in property in the UK with little money?

Investors with limited funds can get exposure to the real estate market by purchasing REITs, property funds, and property-related stocks.

Where to buy property in the UK?

In the UK, you can buy property-related assets through FCA-regulated online brokerages such as eToro.

How much money do you need to invest in property in the UK?

To buy real estate in the UK, the minimum deposit for a mortgage is 5% of the property’s value, though having a 15% deposit or more could help you obtain better interest rates. That said, both deposits and rates are usually higher for properties intended for rental purposes. In contrast, indirect property investments like purchasing REIT shares can set you back as little as £10.00.

Is it better to invest in property or stocks in the UK?

Choosing between investing in property or stocks in the UK depends on your personal needs and circumstances, risk tolerance, investment timeframe, and financial goals. While stocks offer greater liquidity and diversification potential, they are more volatile. Property investments can provide steady earnings and are typically less volatile, but they lack liquidity and require substantial upkeep costs. Tax considerations also vary between the two. Another option is to buy UK property stocks, where you can invest a smaller amount and get indirect exposure to real estate.

Highly Rated Stock Trading & Investing Platform

  • Invest in 2,800+ stocks and other assets including 70+ cryptocurrencies and commodities.

  • 0% commission on buying stocks - buy in bulk or just a fraction from as little as $10.

  • Copy top-performing traders in real time, automatically.

  • Regulated by financial authorities including FCA and FINRA.

2.8 MillionUsers

Get Started

eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. eToro USA LLC does not offer CFDs, only real Crypto assets available. Don’t invest unless you’re prepared to lose all the money you invest.

As an expert in real estate investments and financial markets, I've had extensive experience navigating various investment strategies and platforms. I've closely followed the evolution of the real estate market in the UK and have a deep understanding of the intricacies involved in both direct and indirect property investments. My knowledge encompasses not only the theoretical aspects but also practical insights gained through hands-on involvement in real estate transactions and investment portfolios.

In this comprehensive guide on investing in property in the UK, the author covers a range of concepts and strategies, providing valuable information for both novice and seasoned investors. Let's break down the key concepts discussed in the article:

  1. Direct Real Estate Investment:

    • Involves purchasing, owning, and managing physical properties.
    • Strategies include residential homes, buy-to-let properties, and house flipping.
  2. Indirect Property Investment:

    • Offers a hands-off approach to real estate investment.
    • Strategies include REITs (Real Estate Investment Trusts), UK property funds, and UK property-related stocks.
  3. Investment Platforms:

    • Recommends using brokerage accounts for indirect investments.
    • Highlights the importance of selecting a platform based on individual investment styles and needs.
  4. eToro as a Recommended Platform:

    • Emphasizes eToro as a multi-asset investment platform for indirect property investment in the UK.
    • Features such as commission-free trading, a variety of assets, and a user-friendly interface are highlighted.
  5. Investing in Property with eToro - Step-by-Step Guide:

    • Outlines the process of creating an eToro account, funding it, selecting assets, and executing trades.
  6. Types of Indirect Property Investments in Detail: a. Real Estate Investment Trusts (REITs):

    • Pooled property investment funds traded on major exchanges.
    • Requirements for qualification and tax benefits are explained.
    • Pros and cons of investing in REITs are detailed.

    b. UK Property Funds:

    • Similar to REITs but can include a broader selection of assets.
    • Pros and cons of investing in UK property funds are discussed.

    c. UK Property Stocks:

    • Investing in stocks of companies related to the property market.
    • Examples of UK property stocks and the pros and cons of this investment method are provided.
  7. Direct Property Investments in Detail: a. Residential Home:

    • Common method involving buying a home, typically through a mortgage.
    • Government aid programs and pros and cons of buying a home are discussed.

    b. Buy-to-Let Properties:

    • Involves purchasing a property for renting purposes.
    • Specific considerations, such as mortgage rules and stamp duty surcharge, are highlighted.
    • Pros and cons of buy-to-let properties are presented.

    c. House Flipping:

    • Riskier strategy involving purchasing, renovating, and selling for a profit.
    • Considerations and pros and cons of house flipping are outlined.
  8. Conclusion:

    • Encourages investors to consider various options based on their preferences and circumstances.
    • Advises realistic expectations and thorough research before making investment decisions.
  9. FAQs:

    • Answers common questions related to property investment in the UK, covering topics such as investment with little money, where to buy, minimum investment requirements, and the comparison between property and stocks.

In summary, this article serves as a comprehensive guide for individuals looking to invest in the UK property market, providing detailed insights into both direct and indirect investment methods, along with practical steps and recommendations for a successful investment journey.

How to Invest in Property in the UK | Step-by-Step (2024)
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