For many investors in London and the South East, the relentless pressure on buy-to-let income means that the numbers no longer add up. The stamp duty rise, tightened buy-to-let lending and cuts to tax relief is eroding profits and is forcing many landlords to review their portfolios.
If investors can purchase cheaper properties with better yields, they will have the opportunity to protect and boost their profits in the longer term. The recent changes have made it a lot harder to make money in the buy-to-let sector and the investors most at risk are those with smaller deposits who have bought property in parts of the UK where rents are low compared with house prices.
However, savvy investors can absorb these new charges by buying cheaper property with higher yields and avoiding acquiring property in London and the South East, where the average annual returns between 2010 and 2015, was just 4.86% in outer London and 4.71% in the City, according to LendInvest.
Although London is very popular with landlords, recent research from LendInvest shows that the North West has been the most lucrative area for average annual rental yields over the past five years. Property investors should therefore consider looking to invest in the buy-to-let market in university towns in the North West to find the best returns.
According to Savills, the five largest rental markets outside London are Manchester, Liverpool, Leeds, Bristol and Birmingham - all popular university cities where an average of 23% of the population live in the private rented sector.
Landlords will find the best returns in urban areas, with a concentration of students and young professionals. Yields in houses of multiple occupation (HMOs) can be high. If you’re targeting the student or young professionals market, buy a multiple-bedroom property near the university or City. Students and young professionals are looking for high spec accommodation with good appliances and a quality finish, that have good transport links nearby, such as train stations and main roads.
House prices in London are about five times what they are in Manchester, for example, but salaries are only 30% higher. Manchester is a very affordable place to live and demand for property is soaring in the city, thanks to the expansion of the MetroLink tram system, the trendy Northern Quarter and the BBC Media City.
It also has vibrant restaurants, bars, clubs plus a great music scene, galleries and museums. Manchester is also home to nearly 100,000 students, making it one of the largest student cities in Europe.
An average residential property in Manchester is just £155,000, while a flat in a good area, costs as little as £120,000. A property in Manchester can provide a 5% minimum cash rental yield and a typical 12% total cash yield, including 7% capital appreciation. Demand for rental accommodation is strong and by comparison with other regions, housing is cheaper.
Manchester is actually a very affordable place to live and many students chose to carry on living here after they graduate, as well as graduates from other areas moving to Manchester. There’s a very important young professional scene in Manchester. The cost of wages relative to property costs is a very important factor in attracting these people. House prices in London are about five times what they are in Manchester, but salaries are only 30% higher.
Manchester is a great place for investors. I have personally built a successful, mid-sized portfolio of buy-to-let properties in South Manchester. Over the last 12 months I have enjoyed average rental yields of 6% across my 80 properties.
By Peter Armistead, head of Armistead Property.
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Peter makes a good point about the yields available in the North West, and Invest North West was the theme of my own lectures at the Property Investor Show in Excel earlier this year. We currently have investors coming to us from Singapore, Dubai, France and Ireland as well as the many we meet at Liverpool Lime Street station who have come up from London.
It is an old adage, but true, that some people don't seem to realise there is a country north of the Watford Gap. My own area of focus is Merseyside. Here we have Michelin starred restaurants, a lively arts scene, a concentration of tech companies and some of the biggest infrastructure projects in the country (see my LinkedIn profile for more details on these).
We currently have on our books student HMO's offering gross yields of 13.5%, HMO's on 11.5% , a commercial property offering 9% on sale for £525k where the neighbouring properties are valued at £2.3M and £2.8M respectively, and a raft of quality residential freehold investments at 7.5% - 13% gross.
I understood why investors wanted to take advantage of the expectation of capital growth in the south east until recently. The climate has changed, and investors chasing a return on their capital could do worse than getting on the train to Liverpool (we even lay on a free lunch during our investor tours!).
I think you should make a financial contribution for this advert Andrew!
Only saying it as it is, Paul (although I take your point!).
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