The top investment opportunities for landlords have been revealed in a new analysis of the buy-to-let (BTL) market.
Despite the string of tax changes making it harder to invest in buy-to-let, there are still pockets of the market where landlords can achieve an average yield of 5.4%. This is according to the ‘UK Buy to Let report’ produced by Shawbrook Bank and compiled by the Centre for Economics and Business Research (CEBR).
The study looked at house prices to predict annual property price inflation will be more subdued in the five years up to 2023 than over the last few years. It also forecasts average annual house price predictions for the years 2017 to 2023 to be at 4.5%, compared to the average of 7.0% for the high-growth years of 2014 to 2016.
Shawbrook cites stretched affordability ratios, years of weak wage growth and possible further interest rate rises as the deciding factors on the outlook for house prices in the UK for the next few years.
What’s more, house price growth has slowed in the capital, with Brexit and uncertainty regarding the future of the financial services sector in the City of London looming over activity in the prime end of the market, as have higher SDLT rates.
The report expects price growth in London 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 the percentage of high-end purchases from overseas in London’s most expensive postcodes, dropping from 44% in 2016 to 35% last year.
While landlord investment in London slowing, the attractiveness of other regions for BTL investors improves. In fact, higher rental yields in the North West region and the city of Manchester have bumped them up to the top new investment hotspots. This is due to lower property prices, which makes it easier to achieve better rental yields, with the city attracting students and employees from all around the country.
According to the study, the average UK house price is currently £228,000, which is 43% higher than the average house price in the North West (£159,000). The North West leads the ranking with an average yield of 5.4%, followed by Scotland with 5.3% and Yorkshire and the Humber with 4.9%.
“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,” said Emma Cox, sales director for Commercial Mortgages.
She said that constraints for investors and lower rental yields in London are driving borrowers to head North where there are lower average house prices.
“There are still interesting times ahead for savvy investors and good investment opportunities remain,” Cox continued. “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.”