Many buy-to-let landlords and investors stick to familiar, local markets, but there’s a new trend for property investment further afield and it could be a better choice for many.
When choosing where to invest in property to be rented out, historically many landlords and investors would choose areas close to where they live, in a market they already know well and with the added benefit of being able to keep an eye on the property, particularly when self-managing.
However, the property market across the country has been changing and rebalancing for several months now, with a distinct swing away from investment property in London and the south of England, which used to be go-to property hotspots. Now, both house price growth and rental yields are performing worse there than many areas in the country, and a growing number of the investors who snapped up property in the capital and the south-east a decade or more ago are either selling up in order to reinvest elsewhere, or are expanding their portfolios to include the emerging markets in better performing regions such as the north-west and the Midlands.
Issues affecting today’s landlords and property investors
What property investors must now factor in is issues such as the 3% stamp duty surcharge, which has put many off investing in high-cost areas such as London and the south-east, as it takes away a major chunk of cash for many. Affordability is also something that must be more carefully considered now since the Prudential Regulation Authority moved the goalposts last year, meaning that buy-to-let mortgages are more strictly stress-tested and some have found their borrowing power decreased.
Another issue is the phasing in of Section 24 rules which mean property investors are able to claim less mortgage interest relief on their tax bills, resulting in diminished profits for some. While property is still one of the most popular investment choices for many, it is more important than ever to make the right investment decision in order to maximise returns.
A recent report by Kent Reliance stated: “Where London once led the way, it now lags behind. With an affordability ceiling reached, rents are rising fastest outside the capital, while total returns too are more attractive in areas such as the north-west… Landlords are becoming even more discerning in their investment decision-making.”
Choosing a new location
Looking at the latest trends, as well as future predictions, is a good start for property investors looking at buying further afield. While it may be daunting investing in a property in an unfamiliar area, thorough research should ensure that the best decision is made.
At present, the best performing markets are outside the capital. Recent data from HM Land Registry and Office for National Statistics shows that Manchester house prices soared by 7.5% between May 2017 and May 2018, from £158,994 to £170,903, which is still an attractively low price point – particularly for those looking to diversify away from the expensive London property market.
Birmingham was another strong performer with a 6.9% rise over the same period, from £168,617 to £180,320, while Leeds saw prices climb by an above average 4.3% annually, from £170,636 to £177,983.
As well as considering capital appreciation for long-term prospects, investors also need to look carefully at rental yields to determine the strength of an area. According to an in-depth report compiled by Totally Money, Liverpool is one of the best places in the country to achieve stellar rental returns, with the L6 and L7 postcodes both earning investors more than 11%.
Self-managed or agent?
One downside to investing in an area away from where you live is that, depending on the number of properties you own as well as the nature of your job and lifestyle, self-management – where you find tenants, draw up contracts and carry out any maintenance or repairs and deal with all queries yourself – could be more difficult. It is possible, however, although some would prefer to use a letting agent or management agent to do the job for them. When investing in a new-build buy-to-let or build-to-rent, management often comes included.
While this may cost slightly more, when considering the stronger rental yields and capital appreciation that can be achieved by investing further afield, it is likely to still work out financially beneficial in the long run.
