When considering your next UK property investment, you may be asking yourself, should I invest in a house or an apartment? Both options come with benefits, and the decision will ultimately depend on your investment goals and the current state of your portfolio. Diversity is important in any successful investment portfolio as the values of all assets fluctuate over time and having different types of properties therefore means that when one type is not performing as well, your other investments can keep you profitable until the market changes again. For example, during the pandemic larger houses and apartments with outdoor space, often outside of cities, became more popular as people were housebound and their environment at home became a priority.
However, now many people are back in the office and wanting easier commutes and the convenience of city centre amenities, city centre apartments have seen a huge increase in demand. This is just one example of a largely unpredictable change in the UK property market which could impact the success of your portfolio. To help you on your investment journey and to inform your next move, we’ve compiled a simple list of the benefits and drawbacks of each option, so that you can decide whether a house or apartment is the best option for you to grow a successful, sustainable and diverse portfolio.
Why Invest In UK Houses?
When choosing your next property investment, it’s important to understand what type of tenant you’re hoping to attract. Detached, semi-detached and terraced houses often attract larger households and families, as they typically offer more space in comparison to apartments. They can come with gardens, parking, garages and loft space, all of which can be desirable for these types of tenants. Older tenants and those with families also tend to have longer tenancies according to research conducted by the English Housing Survey. This makes houses a good investment if you’re looking for long-term renters that save the hassle and additional fees of frequent tenant-finding.
It is also worth noting that houses are usually freehold as opposed to leasehold, which means you will encounter fewer potential difficulties regarding building management and legislation, including not being required to obtain an EWS1 certificate. You will not be required to pay ground rent and there is no need to worry about lease length or lease renewal as you are the sole freeholder. You may have to pay a small service charge for the maintenance of external communal areas in the development, but this will vary from development to development.
Houses can also offer more flexibility when it comes to extending and increasing overall value of the property. If you come to sell your investment further down the line you will have more control over making enhancements to a house to increase its value, as well as the natural capital growth it will generate. If your investment strategy changes and you have a larger property, there may also be the opportunity to convert the house into multiple smaller units or HMO’s.
With working from home becoming a more commonplace dynamic in the aftermath of the pandemic, many renters are seeking homes with additional space to convert into a home office. Similarly, these tenants may wish for access to more garden space or outdoor space nearby their property to enjoy with their families or to enjoy on their work-from-home lunch breaks. You are more likely to find these features in suburban houses rather than inner city apartments, hence the appeal of houses.
Houses can also offer greater privacy for tenants, and less room for issues with adjacent units in detached when compared to apartments where noise can travel through thinner neighbouring walls.
Houses in suburban areas often cheaper to rent than inner-city apartments, which can broaden the audience of your potential tenants. This price discrepancy between houses and apartments can be seen across multiple popular cities: for example, in Manchester the average rent for an apartment is £1,657 pcm compared to £1,448 pcm for houses, and in Liverpool apartments cost an average of £1,316 pcm compared to houses at £995 pcm. These cheaper prices will make it easier for buy to let investors to find viable tenants.
Demand and House Price Trends
House prices in suburban areas have experienced considerable growth, especially post-pandemic when space became a deciding factor when looking for new homes. An analysis by Halifax noted that inner city properties, which would largely be made up of apartments, saw a price hike of 8.9 per cent compared to 10.8 per cent in suburban areas. Paired with the huge shortfall in housebuilding and the government’s consistent inability to reach their 300,000 per year house target, we expect houses in suburban areas to remain fiercely in demand and continue to accrue value.
A stunning collection of homes located on the southern edges of the beautiful market town of Shrewsbury.
- 2,3 & 4 bedroom houses available
- Shrewsbury property prices have increased by 18% over the past 5 years
- Average price for detached properties is currently £418,462
- Commute to Telford, North Wales and Birmingham in under an hour
- Local amenities including schools, golf club, supermarket and train station
- 20% Deposit required
Considerations When Investing In A UK House
Lower Rental Income
However, this isn’t to say that investing in houses is without its problems. Houses are typically located in more suburban neighbourhoods which, in comparison to inner city properties, can demand lower rents. The more consistent, longer-term tenants and lower tenant-finding fees can offset this and can improve your ability to make impressive yields when investing in houses rather than apartments.
What’s more, houses are typically more expensive to purchase than apartments, and require a more substantial cash deposit to secure your house, making it a potentially riskier purchase. Data suggests that detached, semi detached and terraced properties are on average more expensive to purchase than apartments in key cities such as Liverpool, Birmingham and Leeds. In each of these locations, houses represent the greater risk, with apartments being far more affordable – in Birmingham, the average apartment was sold for £149,595, which is significantly cheaper than the overall average selling price of every property type which was £253,579, demonstrating that apartments may be the more feasible option for most investors.
Maintenance and Upkeep
Although older houses can be full of characterful features that can broaden the appeal of your house, they may also have age-related issues that require improvement. From outdated boilers to draughts and single glazing, there are a plethora of issues that may need to be addressed when buying an older or period property. This is even more important considering the upcoming amendments to EPC regulations in 2025, which will make these home improvements even more vital. Similarly, you will have to consider outdoor maintenance with houses, especially if you have a large garden. As such, if you want your next buy to let investment to be as simple as possible without any additional works, a more modern property may be the best option for you.
It may be harder to identify high-yielding and high-growth suburban areas, and suburban areas tend to see less investment regeneration when compared to cities. As cities are where the most people, jobs and opportunities are they receive the most redevelopment, so you can expect prices to stagnate in areas that do not receive this level of investment.
Want to know more about the UK property market for 2023? Download the UK Investment Guide today and discover everything you need to know about UK property investment in the new year. In this guide you’ll find:
- Current market performance
- Forecasts for the UK property market in 2023
- Key trends impacting the market
- Best places to invest in 2023
Why Invest In UK Apartments?
Not only do apartments tend to be cheaper than houses, but their smaller size and inclusion in high rise apartment blocks and complexes makes them city centre staples. This makes apartments the go-to property type if you’re looking to take advantage of the high rental demand of inner cities and bustling towns.
Younger people are also more likely to rent than buy, meaning that this demographic is the most lucrative to target – these are more likely to want to live in an apartment, and in the middle of a city where the most new jobs, educational opportunities and culture thrives. This demographic may also not need the same amount of space that an older, more established family may require. As such, if you’re looking to diversify your portfolio to appeal to younger renters or even students, cheaper apartments and city centre apartments may be the best option.
Rental Income and Growth Potential
Apartments have more competitive rental yields when compared to their property counterpart: for example, in 2022 Birmingham detached houses had an average yield of 4.99%, whereas apartments reached 7%. Much of this may be down to the inclusion of additional amenities in many apartment complexes, such as concierge services, cleaners and gyms, all of which can boost the rental value of your apartment. There is also evidence that capital growth potential in apartment-filled cities may be greater than in house-filled suburbs, with the growth in cities outweighing the growth in suburbs on an average national level. Key cities such as Sheffield saw inner city growth sit at 18.9 per cent compared to 9.7 per cent outside of the cities, showing that depending on location you will achieve far more impressive capital growth in city cores than in suburban neighbourhoods.
Lastly, the ability for landlords to rely on building management agencies to assist with the smooth running of their tenancies is a great option for landlords that may be new to investing, or already have a large, time consuming portfolio, as such management agencies can deal with maintenance problems, building access queries and other tasks that would otherwise be the duty of the letting agent or landlord. – you can get property managers for houses so not sure this really applies?
Apartments require fewer maintenance works due to their smaller physical size, as well as the fact that broader building maintenance is not the responsibility of individual unit landlords. This helps to minimise some of the responsibility on buy to let apartment landlords. Newer apartments also come well equipped with modern appliances, which will likely come with up to date warranties and may not require too much maintenance in the short term.
Demand for apartments is high, especially as most apartments are situated in highly populated areas such as inner cities and towns where competition for these residential spaces is especially fierce. Zoopla have already started to notice a surge in popularity for smaller properties, especially one and two bedroom apartments near densely populated cities. Their data suggests that 27 per cent of new buyers are searching for one and two bedroom apartments, a significant boost from last year which saw 22 per cent of purchasers looking for the same property type.
Off-Plan investment opportunity
Northern Quarter, Manchester
- Prime Manchester location
- 85% price growth reported over the past 10 years
- 1,2 & 3 bed apartments at the heart of Trafford’s Civic Quarter
- Located in one of Manchester’s most popular neighbourhoods
- Projected rental yields up to 8%
- JLL predicts 19.3% price growth and 21.6% rental growth by 2027
Considerations When Investing In UK Apartments
Ground rent and service charges can take a significant cut of any profits. These charges aren’t without merit, as they contribute to the maintenance of valuable amenities and shared spaces, but the potential for these charges to fluctuate can spell worry for landlords. Additionally, apartments may experience issues surrounding their cladding and obtaining a suitable EWS1 certificate, especially if you wish to sell on your investment property in the future. Similarly, ever changing lettings legislation can be hard to keep up with, and could hinder your ability to find a tenant for your apartment, especially fire safety regulations across entire apartment blocks where fire exits are communal.
If you’re on the hunt for an older apartment, you may encounter some issues regarding cladding. You will likely have to deal with safety regulations when purchasing or selling on an older apartment, and will likely require an EWS1 form to ensure your apartment is mortgageable, which could cause problems in the future. Furthermore, older apartments may be even more difficult to finance if their lease is running low, with leases of approximately 80 years or less being hard to mortgage and difficult to sell on without renewal.
Whilst it can be beneficial to have a building management agency on hand to assist with any queries, you will have to consult with them and your freeholder if you wish to make any improvements to your unit. This restricts the control you can have in bettering your unit and increasing value, especially in relation to communal areas such as hallways that have shared responsibility and access.
Voids and Tenant Turnover
Apartments are usually more prone to void periods and greater tenant turnover, as longer-term tenants tend to be families that may prefer to rent a house, or simply purchase a property outright rather than rent an apartment. Evidence suggests that younger tenants who may be more likely to rent an apartment will stay for 1.3 years, whereas older tenants who may require the space of a house for their jobs or family are likely to stay for an average of 5.7 years. This may be driven by the ever-moving nature of inner city living which is filled with redevelopment, as well as the likelihood for younger tenants to change educational facilities or career that may warrant a property move.