New analysis of the buy-to-let market presents an opportunity for landlords, revealing exactly where the top rental hotspots are for 2018/19.
Shawbrook Bank’s latest UK Buy-to-Let Report, compiled by the Centre for Economics and Business Research (Cebr), shows that, despite a barrage of tax changes making it harder to make money on buy-to-let, there are still pockets of the market where investors can achieve an average rental yield of 5.4%.
Looking at house prices, Shawbrook Bank predicts that annual growth will be more subdued in the five years to 2023 than over the last few years. The report forecasts average house price growth for the years 2017-23 to be 4.5%, compared to an average of 7.0% for the high-growth years of 2014-16.
Stretched affordability ratios, years of weak wage growth and the prospect of further interest rate rises all weigh in on the outlook for house prices in the UK for the next few years.
House price growth has slowed in London particularly, with Brexit and the resulting uncertainty regarding the future of the financial services sector in the City of London looming over activity in the prime end of the market, alongside higher Stamp Duty rates.
The report expects price growth in the capital to continue to trail behind the rest of the country for the next two years, with new figures from estate agent Aston Chase already showing that the percentage of high end purchases from overseas buyers in London’s most expensive postcodes have dropped from 44% in 2016 to 35% last year.
With investment in London slowing, the attractiveness of other regions has improved. Shawbrook Bank found that the North West and the city of Manchester, in particular, are the top new rental hotspots, due to higher yields.
Lower house prices mean that it is easier to achieve high rental yields, while Manchester is attracting students and employees from across the country. The average UK house price is currently £228,000, which is 43% higher than the typical property value in the North West, at £159,000.
The North West leads the ranking, with an average rental yield of 5.4%, followed by Scotland, at 5.3%, and Yorkshire and the Humber, at 4.9%.
Emma Cox, the Sales Director for Commercial Mortgages, says: “Landlords have had a rough ride over the past few years, with multiple tax changes, but our research shows that it’s not all doom and gloom for potential investors in 2018. Lower rental yields in London, and affordability constraints for investors, has driven interest north, where borrowers are chasing the yield and heading to locations with lower average house prices.
“There are still interesting times ahead for savvy investors and good investment opportunities remain. However, when landlords invest far away from their home turf, they can run the risk of falling foul to local knowledge. Smarter local investors may be seeing an opportunity to divest themselves of their less desirable housing stock, so it’s important for buyers to do their research to make sure they understand the local supply and demand before investing.”