Property investors and landlords looking for a new investment location with strong yields, capital gains prospects and further improvements in the pipeline are focusing on these cities.
Buy-to-let landlords and property investors are still extremely active in the UK property market, but the current economic climate means it’s more even more crucial to get the right property in the right location.
For some, this might mean focusing on opportunities in areas that are less familiar or less local. Many overseas investors, for example, hone in on London due to it historically having a very strong property market, but things have changed in recent years and many parts of the capital have actually lagged behind other areas.
Both rental yields and capital appreciation prospects are the key things to achieve for a successful property investment. This could entail seeking lower priced property in an area that is still on the rise, alongside having strong tenant demand and rental prices.
Some new research has been published – one by Paragon Bank and one by Start Up AZ – which pinpoints the most promising locations for landlords right now, and two cities rank highly in both of their lists of investment hotspots: Manchester and Birmingham.
Top spots for landlords
Increasingly, buy-to-let landlords and property investors are targeting the regional towns and cities of the UK, where better profits can be made and the price points are lower. Rising mortgage rates could also have influenced this, as less leverage is generally needed for more affordable properties.
Manchester took the top spot as a destination for landlords in Paragon’s analysis, which found that the M14 postcode – covering Fallowfield, Rusholme, Old Moat and Ladybarn – was the most popular location to invest in 2023. Here, the average weighted rental yield, according to Paragon’s data, is 7.50%.
The second most popular place for landlords to buy property was Birmingham, said Paragon. The particular postcode that investors were honing in on in 2023 was B29 – covering Selly Oak, Bournville, Edgbaston, Kings Heath, Northfield and Stirchley – with yields of 6.90%.
With a slightly different set of measures, Start Up AZ also placed Manchester in the top spot as a property investment location. The city generates average net yields of 6.9%, while the average buy-to-let costs £252,000 in the city, which is below the national average property price.
Only slightly further down the list, Birmingham appeared once more, offering landlords 6.8% net yields with an average £248,000 price tag.
How to choose a location
Reports such as these are a good place to start when considering various property investment options, as it is useful to see how the average buy-to-let property performs in each area.
It is also worth considering any upcoming regeneration or major transport improvements coming to the location, as well as employment prospects and whether these might also increase in the future.
Both Manchester and Birmingham are often described as the UK’s “second cities” after London, and the cities have seen vast amounts of regeneration in recent years. But you only have to look at the skyline of each city, and the cranes dotted around, to see that major improvements and investment are still ongoing.
Growing numbers of employers are continuing to relocate or open new offices in these cities, which has made a huge difference to their populations. For landlords, this has meant an influx of tenant demand, supporting rental prices as well as property prices.
Richard Rowntree, Managing Director at Paragon Bank, said: “Our data shows that portfolio landlords have a strategy of targeting major towns and cities across England and Wales, from Brighton and Hove on the south coast, up through the midlands and Wales and onto Newcastle.
“Something that links many of these diverse areas is their proximity to universities or large employers, such as the NHS or manufacturing and distribution hubs. This helps to illustrate the crucial role that the PRS plays in supporting further education provision and the workforce, both vital facets of the UK economy.”
