The way that people invest in property in the UK is changing, with new factors to take into account compared with a couple of decades ago, and the north of England continues to come out on top.
The UK property market, like housing markets internationally, has gone through its fair share of changes and shifting trends over the years. This has been led by various government policies, economic ups and downs, shifting trends and behaviours, and even unprecedented events like the Covid pandemic, from which few sectors came out unscathed.
Throughout all this, property investment has been a mainstay for many, as the housing sector has continued to demonstrate overall resilience and price rises, offering a ‘safe haven’ type of asset for those who can tie up their cash for a longer time frame. This includes a rental sector that has boomed and grown, with heavy demand from the rising number of tenants outpacing the homes available.
For anyone looking to invest in property, an awareness of these changes and new trends is crucial, and a big part of the success of an investment is opting for the right location. This has been another major shift in the market, with the north outperforming the south over the past decade on almost every measure.
The North East, the North West and Yorkshire and the Humber have shown the fastest acceleration in house prices over the past 10 years, according to all major house price indices such as Rightmove, Halifax and Nationwide. Landlords seeking to invest in property that will provide the highest level of capital appreciation have therefore honed in on these regions.
Manchester has previously been named the ‘best place to be a landlord‘, and its hugely in-demand rental sector plays a big part in this. As the jobs market in this city and others in the north has improved, more young professionals have chosen to relocate – or remain – in these cities, where they can also get a lot more for their money.
1. Better value attracts investors
While property values have gone up at a much faster rate in the north than in the south over recent years, it remains the cheaper of the two places in the UK to buy or rent. It means it offers better value for those seeking to invest in property at the cheaper end of the scale, which is important for those looking to diversify.
According to data from the Office for National Statistics, the average property in England in 2023 cost the buyer 8.3 times a full-time average salary. However, the ratio in the north of England was much lower, making it easier for buyers and investors living their to afford a property.
At the other end of the scale, the ONS found that, although earnings are higher in London, 82% of local authorities in the capital had affordability ratios of more than 12. This makes it unaffordable for many prospective homeowners, which not only keeps tenants renting for longer but is also a reason more landlords have looked elsewhere to invest in property.
2. A question of tax
Tax is a hot topic at the moment since the Labour party revealed its first Budget since coming into power in the summer. Its measures included raising the stamp duty surcharge that applies to anyone buying an additional property from 3% to 5%, making it more expensive to invest in property.
Leading on from the cheaper house prices in the north, this also means that the stamp duty bill for those that invest in property in a more affordable area will be lower, because stamp duty is calculated proportionately to the value of the home.
Data from Paragon Bank from August 2024 shows that the average purchase value in Greater London was £739,166, equating to an average stamp duty payment (when the surcharge was still 3%) of £46,633. At the other end of the scale, the average home in the North East costs £186,520, meaning a stamp duty bill of just £5,595.
Similarly, the average tax bill in Yorkshire and the Humber was £6,620, while in the North West it was £6,816. For an investor, this is an important part of any investment to factor in when calculating your potential returns.
3. Invest in property for top returns
Looking at what the average rental income is in any given area, and how that relates to the average property value, can give you a good idea of what your gross rental yields will be. Increasingly in the current climate, this has become more important to many investors than potential capital appreciation, particularly as monthly mortgage costs have increased for many.
This is another area where the north of England continues to outperform for those who invest in property there. For example, Paragon Bank’s research shows that with an average rental income of £15,160, compared with an average house price of £186,520, the North East brings in the best returns for landlords with an average rental ratio of 8.13%.
This is followed by Wales where investors can expect an average rental ratio of 8.07%, then the North West (7.84%) and Yorkshire and the Humber (7.54%). At the lowest end of the scale, investors in Greater London see an average rental ratio of 5.56%.
4. Strong tenant demand
It is important for buy-to-let landlords to invest in property where there is proven high tenant demand, in an area where this is only likely to stay the same or increase. This might be a city centre that’s set for more regeneration and jobs growth, or a commuter town that’s becoming more popular among renters.
The North West of England, according to Paragon Bank, currently has the highest level of overall tenant demand, with 81% of landlords there reporting high demand for their properties. This is followed by Yorkshire and the Humber where 78% of landlords said the same, and the North East where it’s 68%. Much of this is linked to the jobs market, as well as university locations that have a higher proportion of renters.
If you’re looking to invest in property in one of the top-performing locations in the north of England, get in touch with BuyAssociation today, or browse some of our current projects here.
