Buy-to-let landlords are increasingly looking to move out of central London to more affordable suburbs where higher yielding property investments are available, according to the National Landlords Association (NLA).
The move follows a recent fall in rental demand in central London, which largely explains why just 5% of landlords who operate in the heart of the capital say they plan to purchase more properties in the next quarter, the lowest across all regions and down from 15% this time last year.
In contrast, the proportion of landlords operating in the North East who plan to buy in the next three months has almost doubled - up from 10% a year ago to 19%.
The proportion of landlords in Yorkshire looking to buy has also jumped significantly from 10% this time last year to 16% this quarter.
Carolyn Uphill, chairman of the NLA, said: “It looks like central London is simply becoming too expensive for most people, regardless of whether you want to buy, invest or rent.
“For many tenants the practical solution of moving out of the city to more affordable suburbs with good transport links is becoming increasingly appealing.
“In turn, it seems that landlords have been quick to respond, turning their backs on the capital and looking to other areas where the upfront cost of acquiring property is lower, and the potential yields to be had are higher.”
According to Rightmove, northern regions - places like Merseyside and Lancashire in the North West of England - offer some of the best rental returns.
Bootle in Merseyside currently offers a yield of 9.3%, Birkenhead is 7.5% and in Lancashire Burnley’s yield is 7.2%, while Accrington is 7.1%, according to the property website.
“Investors looking for the strongest yields could consider investing in certain areas in the North West where both demand and yields are high,” said Sam Mitchell, Rightmove’s head of lettings.
Paul Smith, CEO of haart, is among those that believe more buy-to-let investors will ‘naturally gravitate north’ in 2017.
“The buy-to-let market has been severely stung by the government’s war on landlords,” said Smith. “In some parts of the country, especially London, a buy-to-let property no longer makes the same return it once did.”
“Investors will naturally gravitate north where values are cheaper and yields are higher - you can pick up a portfolio of two-bed terrace properties in Doncaster for the same price as a one-bed flat in a new London development,” he added.
Stuart Law, owner and founder of Assetz, agrees that the UK’s rental sector has experienced what he described as “a sea change” over the past year as “canny investors recognise that the north, not London, is where the best yields can be found”.
He commented: “I expect we'll see overall growth of rents of 4% in 2017 as landlords seek to cover the impact of the new mortgage interest tax and capitalise on some potential reduction in the size of the rental property market.”
“London investors have been hounded out by a combination of low yields and the curbs to mortgage interest tax relief, or ‘tenant tax’ as I call it. The lesson in 2017 that people must learn is that buy-to-let isn’t dead – it has just gone north,” Law added.