For property investors, it can be difficult to know where and when is best to invest in the UK. That’s because there are so many factors you have to take into consideration, including your own investment goals. Our ‘Ultimate guide to buy to let property investment’ outlines some of the key factors to consider, including how to create a buy to let investment strategy.
What this means is that the same location might be great for one investor, but just ‘okay’ for another – it really depends on your personal financial objectives and circumstances. To help identify the best place to invest in property for you, there are three critical things to think about and research:
Investing in property delivers returns in two ways:
Although every investor would love to get both, an area is typically likely to deliver one or the other.
Securing a good monthly profit and a high level of capital growth isn’t easy - especially as mortgage interest rates have increased - unless you buy a property at a discount or add value to it – such as through renovation or extending the accommodation.
If securing monthly income is your priority, look for property in an area where rental income can deliver a yield of seven per cent or more – and you might consider investing in a House in Multiple Occupation (HMO), which tends to deliver much higher yields.
If you prefer to focus on capital growth, you need to bear in mind that inflation averages around three per cent a year, but more recently as we all know, inflation has taken off and reached over ten percent at one point, before gradually coming back down again.
So make sure you choose an area where annual property price growth is usually several percentage points more than the average each year – this is especially important if you’re investing with all cash.
Property investment delivers the best returns where demand is always higher than supply. For good capital growth, demand from buyers needs to exceed the number of homes for sale, and for good rental profits, tenant demand must be higher than the number of properties available to rent.
So, picking the right road in an area and knowing whether two bedroom flats or four bedroom detached homes are most in demand – both now and in the future – is critical.
You might think it’s impossible to know what an area will be like in the future, but there are plenty of sources you can tap into:
The Local Plan should highlight expected population growth and detail what type of housing will be built in which locations to meet anticipated demand – which helps you understand future supply.
There should also be information about what local investment is expected that might make new areas more popular. That includes things like improved transport and communication links and new business parks – essentially, changes that could help boost a specific area’s property prices and rents into the future.
There are also lots of reports produced by various companies each year on what’s happening to towns and cities across the UK from an economic perspective, looking at investment in infrastructure, regeneration projects and how popular certain areas are to live in.
It is vital that you take the time and make the effort to do thorough research before committing to any property investment. You need to have a good idea of the future potential of the location, and the earnings potential and true value of the property that you are interested in.
Many people will recommend that you invest in an area you’re already familiar with, and if you’re going to be a self-managing landlord looking after tenants yourself, it’s wise to buy within 30 minutes to an hour of where you live. This means if you’re called out late at night to an emergency or need to check tenants in or out, you don’t have far to travel.
Also, living in the area where you’re investing means you’re on hand to build relationships with local agents, surveyors and other landlords, all of which should help you be as successful as possible.
And it’s worth knowing that if you live in a city or large town, it’s likely that you’ll be able to find some areas to invest in that will deliver strong capital growth, as well as others that deliver good income – you just need to research exactly where will give you the best return for your budget.
Every year, there are a number of reports on which are the best places in the UK for property investment. These are certainly worth reading, but do be aware that some of them are written by companies that are looking to sell their own developments.
So make sure the ones that you focus on are independent, and always talk to local agents and secure a good local surveyor to give their view on the property and area you’re thinking of investing in. But always remember that, first and foremost, your investment needs to be driven by your own investment objectives and budget – and potentially where you live.
Landlords have enjoyed record-breaking rental growth in the last couple of years, boosting yields and putting the property market on the radar of investors looking to diversify their portfolio. But investing in the buy to let sector has also become a little more difficult with increasing regulations, taxation and higher borrowing costs, thanks to inflated mortgage interest rates.
Consequently the sector has been losing investors. But this has created opportunities for other investors willing to navigate the complex rules, and especially those portfolio landlords who intend to operate at scale, using a limited company.
One company that has done comprehensive research into the best areas to invest in for the highest yields in the UK is Zoopla.
Rental yield can help you decide if the cost of the property is worth the potential rental income, taking into account the potential for capital growth and tenant demand in the area. The northern parts of the country without doubt offer the highest yields compared to the high cost, low yield areas such as London and the south-east.
The north east offers the highest yielding properties in the UK right now, where investors can make an average gross yield of 7.2%. The highest yielding cities according to Zoopla are in Sunderland, Dundee and Burnley, which offer a gross yield of between 7.7% and 8.4%
What you definitely have to bear in mind is that high yields represent higher risk. So if you buy a cheaper slightly run down property in a not so good area your immediate returns will probably be higher but then you take more risk - the risk of having more troublesome tenants and loss of income.
A slightly lower yielding area such as some of the northern cities offers the potential for long term capital appreciation, plus outstanding rental demand. For the best areas in the UK to buy rental property, there are several top contenders:
Manchester has consistently been recognised as one of the top growth cities for buy to let investments. Manchester boasts a thriving economic landscape, a growing population of young professionals, and significant investments in major infrastructure. It has one of the biggest student campuses in Europe and areas such as the city centre, Salford Quays, and MediaCity offer attractive rental yields and strong potential for capital growth.
Liverpool is a city that’s undergone substantial regeneration in recent years, making it an appealing choice for property investors. The city offers a vibrant cultural scene, some top universities, and plentiful job opportunities. Areas such as the city centre, The Baltic Triangle, and many waterfront developments including the Royal Albert Dock. There are many sought after areas for renters and investors alike.
Leeds has one of the largest financial and legal centres outside of London, and it presents attractive investment opportunities for landlords. The city benefits from its universities and a large student population. It also has a growing number of young professionals, driving demand for rental properties. Areas such as the city centre, Kirkstall, and Headingley are particularly desirable for buy to let investments.
Edinburgh is recognised as one of the most desirable places to live in the UK. This Scottish capital city attracts a significant number of young professionals and students. Its strong rental demand and limited supply have contributed to increasing rent levels and consequently high rental yields. The city centre, Leith, and New Town are some of its sought-after areas for renters and investors.
Birmingham has a diverse economy - a thriving midlands city with a major business sector, and excellent transport links, Birmingham is becoming increasingly attractive for buy to let investments. The city's ongoing redevelopment includes the Curzon Street HS2 station, which despite the northern link cancellation is expected to drive rental demand. Other areas such as the city centre, Digbeth, and The Jewellery Quarter offer solid rental yields and good potential for capital appreciation.
You should be aware that this is just a small sample of opportunities that exist in the UK, and there are many other cities and regions across the UK where buy to let investments can be profitable. Conduct your own research and seek professional advice before making important decisions.