How to Invest in the UK: ETF's, Real Estate Crowdfunding & P2P Lending

By Oliver James
September 1st, 2023
7 minutes read

The economy of the United Kingdom has long been renowned as a global powerhouse of industry and finance; standing tall as a highly developed, market-oriented economy. The UK’s robust economic makeup sits at number 6 in the world's largest economies, sitting just behind European industrial giant Germany and India's fast growing economy.[1] A continued pattern of exponential growth breathes fire into the UK’s global reach as the world's 4th largest exporter of goods and services[2] - resulting in a firmly globalised economy that makes for an attractive beacon of growth and prosperity.

As one of the most globalised and influential economic hubs in the modern financial world, it’s no surprise the UK is a popular choice for domestic and international investment, boasting a dominant financial sphere and equally alluring services industry. Despite a slight downturn in foreign direct investments in 2022 the UK hosted 929 FDI-backed projects that amounts to 15.6% of all European FDI projects.[3]

Curious about investing in the United Kingdom? Learn about ETFs and other forms of popular investment - popular ways to invest in the United Kingdom.

The Economy of The United Kingdom

Up until the unusual macroeconomic concerns of the last couple of years, the UK's economy was fast-tracked as one of the safer, more insulated hubs of capital protection. After the Brexit debacle and growing uncertainty with the EU, some foreign investors are struggling with new, problematic formalities. A difficult change from a historical trade partnership. Despite organisational hurdles, the UK’s global reach remains at the top in Europe though facing a decline in number of projects from at 20% market share in 2013 to 15.5% in 2022. The UK remains at the top in Europe on value created per project, in fact the UK led Europe on total jobs created from foreign direct investments (47,000) and outperformed Germany and and France on jobs created per project.[3]

The UK's services sector dominates the country's GDP at a clear-cut 79%,[4] heavily weighed down by the country's prominent financial imprint; London currently sits as the second largest financial centre in the world.[5] Also, a bustling innovation hub, the UK's technology sector is the 3rd largest, following the United States and China.

Most domestic stocks and shares are traded within the London Stock Exchange (LSE), one of the largest global exchanges, boasting a diverse array of world-class blue chip companies spearheading financial, tech and engineering evolution. As of November 2021, the total LSE market cap was pegged at $3.9T. One of the most popular forms of investing for UK citizens and foreign investors is through the FTSE 100 Index; a powerful amalgam of the UK's largest companies, including well-known names like Shell, HSBC and pharma-giant AstraZeneca.

Investing in the United Kingdom with ETFs

In recent years, investment in the UK appears to be declining. Uncertainty around the trade in Europe has cast somewhat of a shadow over the once-gem of the EU. However, short-term uncertainty is just that…short-term. The UK's robust, business-moulded investment landscape provides a fruitful yield of well-performing shares. 

International and domestic investors who favour a more direct means of involvement might want to choose an individual share dealing account, whereby sole shares of companies like HSBC or Shell can be traded on an online platform via the London Stock Exchange. International investors might have to open accounts with foreign brokerages if the desired companies are unavailable through a domestic broker. The most common and easiest way to invest in the United Kingdom is through exchange-traded funds (ETFs). By tracking a particular index such as the FTSE 100, investors can tap into a wide range of shares from some of the UK's largest companies, even with limited starting capital. 

There’s a complex array of ETFs on offer, but the iShares Core FTSE 100 UCITS ETF is the leading competitor, run by multinational investment management company Blackrock. ​​iShares also offers an MSCI UK Small Cap ETF. Or for investors seeking an even looser threshold, the Vanguard FTSE U.K All Share Index Unit Trust provides access to stocks representing 98% of all UK-listed companies. 

Acting as such a vigorous financial hub has its benefits for access to leading institutions, start-ups, and steadfast funds, yet this isn’t without highlighted financial stringency. Regulation in the United Kingdom means that alternative, sometimes higher-risk investment methods are often laden with more significant hurdles than more liberal frameworks.

Real Estate Investing in the United Kingdom

Traditional investment routes such as the above methods are incredibly popular in the UK. UK Shares and ETFs provide investor access to some of the largest blue chip companies in the world, meaning they’re often a popular choice with risk-wary investors. Home to key sector powerhouses and fortified by a stable, liquid financial framework, a lot of international investors flock to the UK for security. As far as security is concerned, the UK housing market has been a top choice for low-risk capital allocation for some time.

Despite Brexit, the UK economy still thrives on foreign investment, and its real estate market is a honey pot for an array of international investors looking to diversify capital. So much so, that foreign investments in UK commercial property has increased from £7.4 billion in 2015 to £13.1 billion in 2022.[6]

In 2021, the number of overseas landlords reached a record high, with over 250,000 homes bought and registered to foreign addresses.[7] Economic stability, historically rising house prices and consistently strong demand creates a highly sought-after investment opportunity. However, international buyers should consider that a visa might be needed to visit the property and that income tax will have to be paid on any rent. The United Kingdom as many other countries offers an investor visa for high-net worth individuals that requires £2+ million in investments in the country.

Investing in UK Property with Real Estate Crowdfunding

The idea of investing in property yourself might seem farfetched if you find yourself more fiscally limited than the average property mogul snapping up prime real estate in hotbed markets across the globe. This is where real estate crowdfunding plays a crucial part. Akin to P2P Lending, sites like Kuflink and CapitalRise streamline more limited amounts of investable capital into up-and-coming real estate projects, offering a healthy return for investors looking for a slice of real estate profit without breaking the bank; some sites boast return rates of around 9%. 

There are more than 25 UK-based real estate crowdfunding platforms to choose from, with some offering start-up investment plans from as little as £100.

Investing in the United Kingdom with Peer-To-Peer Lending

Another alternative phenomenon in the investment world, Peer-To-Peer Lending connects potential investors (‘lenders’) with a diverse range of projects seeking financing (‘borrowers’). In essence, these are effectively business loans without the middleman, often touting lower interest rates and higher returns on investment.

In the UK, P2P Lending is still finding its feet in the financial landscape. Popular site Lendy fell through in 2019, with competitor Ratesetter accepting a buyout from Metro Bank the following year. UK firm FundingCircle also changed direction from direct lending to institutional lending. 

There are still more than 15 platforms that offer P2P Lending for investment in the UK; namely, Kuflink, which boasts return rates of up to 7.5%, Crowd2Fund, providing a ‘handpicked’ selection of British entrepreneurs, or AxiaFunder, litigation financing specialists with a focus on providing funding to court cases.

The Bottom Line

There are boundless opportunities for investment in the UK. Most international investors are drawn to the security of index-listed large blue-chip powerhouses, or the unwavering attraction of the booming real estate market - both highly accessible and rich in safe returns. Although P2P lending and other more niche types of alternative investment might be slightly less commonplace, numerous platforms exist to facilitate direct lending. The consensus remains that the UK stands as one of the safest economies to invest in.

Article Sources

  1. The World Bank: “GDP Data Germany, India, UK and Worldwide (USD)”
  2. The World Bank: “Exports of Goods and Services United Kingdom (USD)”
  3. Ernst & Young (EY): “UK Foreign Direct Investment Report 2022”
  4. House of Commons Library, Philip Brien: "Service Industries: Key Economic Indicators"
  5. City of London: “London leads global financial rankings for the second year running”
  6. Statista: “Value of foreign capital investment in commercial property in the United Kingdom (UK) from 2015 to 2022, by property type”
  7. Bird & Co: “Foreign Ownership of Homes in England and Wales Trebles since 2010”