Can the South beat the North for investment? We think so!
Finding Buy to Let properties for Flexible Rentals could be the answer to increasing yield without increasing risk. Let's explore how the South could beat the North on returns.
If you are thinking about investment property in the UK then we believe that your purchase should be something that will work for you – you may want a place to holiday for you and your family or perhaps just provide a return on your investment – or maybe a combination of both of these things. By making your own investment in property in the UK, of the right place in the right area, you should be able to increase the return on your investment through your rental yields as well as the added value of the property over time.
Ensuring your property has the highest possible rental yield is one of the most important factors when selecting a place to purchase as an investment in UK property. In our experience, this usually means finding a great place in a spot perfect for commuters, close to amenities, public transport (with parking) and creating this into a serviced apartment: setting up the place completely, to a high spec, with all utilities and everything that a guest could need. Straddling the space between a traditional hotel and an unfurnished flat and marketing it craftily may well be the sweet spot for an investment right now.
How the South could win
"People are moving out of cities, and we see that this mid-market in serviced accommodation is currently underserved"
If you can find properties in the commuter belt that are suitable for mid-term, fully serviced rentals we believe this is a safe investment with above-market returns for the long term. (There are lots to consider when buying for Flexible Rentals, check out our guide on how to find the perfect property).
People are moving out of cities, and we see that this mid-market in serviced accommodation is currently underserved. Knowing how to clearly navigate this hybrid rental, much less manage it successfully, is incredibly hard, so do your research.
Most properties, much less markets, are not suitable for Flexible Rent. We also have questions over the risk levels on capital growth in some areas – we can hope for it, but don’t believe we should rely on it. Ultimately, our view, take a pretty safe investment of bricks and mortar in a spot you can be confident will be good for purpose, would make for a good property investment in the UK, and increase rental yield through offering Flexible Rent.
"Most properties, much less markets, are not suitable for Flexible Rent"
This might not be exciting enough for some investors. But by being smart on rental yield, with the perfect investment property in the UK, you can avoid picking the wrong areas, with higher risk, to make higher returns.
If you take the temperature of the market at the moment, you might find that the asking prices of properties coming on to the market reportedly increased recently, but then this month there has been a dip of around £1,500. Is this something for sellers to worry about or buyers to get excited about? We don’t think so, as there are a couple of reasons to consider:
Firstly, the stamp duty holiday on homes up to £500,000 is due to end on 31st March 2021, and so sellers putting their property up for sale now are perhaps pricing a bit more realistically so that they have a better chance of a quick sale.
Secondly, asking prices usually drop at this time of year, and this season’s drop is actually lower than usually seen over the past few years.
The good news if you’re a new seller, is that buyer demand is staying strong despite the second national lockdown in England. The market is still open and agents can still operate. The temporary stamp duty savings that can be made will vary a lot depending on the price of the property you’re buying.
We had a look and found that demand and activity are currently strongest in the price bands and regions where buyers (including those considering property investments in the UK) are set to make the biggest stamp duty savings. In terms of how quickly homes are finding a buyer, the national average is now at a record low of 49 days. Homes priced between the £100,000 to £200,000 band are seeing a drop of just eight days. So far, so buoyant!
"We had a look and found that demand and activity are currently strongest in the price bands and regions where buyers (including those considering property investments in the UK) are set to make the biggest stamp duty savings"
Regionally, the south is performing best relative to last year for the number of sales being agreed, up by 72% in the East of England, and up by 69% in the South East. Sellers may be pricing their properties coming to market more realistically to have a better chance of agreeing on a sale in time to benefit from the stamp duty savings on their onward purchase. This slightly more achievable pricing also means that their property is less likely to languish on the books for longer – setting your target price at an achievable place initially ultimately results in a speedier sale at a better price than overpricing the property and then having to reduce it as it lurks unloved, this is especially true of anyone who is looking for investment properties in the UK.
There is a monumental backlog of people looking to move at the moment. Political uncertainty, Brexit and the first lockdown period caused many who were considering moving to wait things out until the lay of the land was more certain, however, the announcement of the stamp duty holiday was the trigger for many of these to take the leap into the unknown and risk moving house making a property investment in the UK sooner rather than later.
"There is a monumental backlog of people looking to move at the moment"
There is also an unprecedented change in lifestyle due to corona: people are now valuing a quieter neighbourhood, a balcony or access to outdoor space more than ever, and looking for a study or spare bedroom to use as they become accustomed to working from home. More tenants are ditching city living in favour of living in commuter towns and villages. Between May and August 2020, 34% of tenants wanted at least one more room (sharply up from the 25 per cent who did so in the first three months of the year, a survey by Hamptons International has found). This upsizing costs on average £149 more per month; the LonRes survey also found that space and gardens are in demand among buyers. The distance considered commutable now is increasing – with people only travelling to an office once or twice a week, if at all, there is a dash for the commuter belt. An area that offers a better lifestyle, that cannot be overdeveloped and seems to be not only holding its value but becoming more desirable with each restriction on our lifestyles as we knew them.
"There is also an unprecedented change in lifestyle due to corona: people are now valuing a quieter neighbourhood"
The poor first-time buyers are continuing to struggle, as the level of deposit needed has increased and this, combined with a lack of job security for many, has meant that mortgage agreements have been harder to come by as banks change their lending criteria. These are your perfect tenants – they want somewhere comfortable that suits their lifestyle with no hassle which offers the ultimate flexibility, so they can lurk in your place until eventually clambering onto the bottom rung of the elusive property ladder.
Who knows what will happen over the coming months? Maybe the spring will see the traditional increase in people willing to make a new start and move, perhaps the promise of a vaccine will encourage the return of the overseas buyer increasing demand in prime central London especially. Certainly, Hamptons said that across Britain, demand from tenants looking to rent has generally edged up in small towns and suburbs while it has decreased in city locations. The main driver with most movers has been the desire to change where they live, whether that be moving to a new area or simply adding a bedroom or garden to their wish list.
With tenants living in the South East of England paying the highest rents, they have been the most likely to trade up, with 47 per cent of those moving post-lockdown adding at least one bedroom in their move. On average they are spending an additional £266 per month. Hamptons found that nearly two thirds (63 per cent) of London renters upsizing have chosen to leave the capital, swapping Big City rental costs for more space. There is a drop in renters in London, so the average rent achieved for the central landlord has also plummeted. However, it should be noted that most upsizing tenants have stuck to the dormitory suburb of the cities they know rather than leaving altogether.
Even younger tenants have an increased appetite for additional space, typically moving from a room in a shared house into a studio apartment, or from a studio into a one-bed home with its own separate living, sleeping and access to outdoor space, often in less populated locations outside of cities, as they expect to spend more time working from home in future.
There are opportunities all over the UK, so please do have a look and explore all your options. We feel strongly about the area we are focussed on at the moment and believe it is a lower risk for your investment.
What about the North?
"Manchester has had a very good five years in capital growth terms, above Liverpool, for example, and the south-east"
...You might be thinking, and you are quite right, the north has been very buoyant recently. For example, Manchester has had a very good five years in capital growth terms, above Liverpool, for example, and the south-east.
Even Liverpool has been growing fairly consistently compared to the commuter belt in London – however, there are parts of the south-east that have grown more slowly. Going forward, the expectation is that this difference will narrow – a combination of higher unemployment in the North married to a glut of housing stock there may cause this upward trend to slow.
If you look back over the past 5 years, house prices in Manchester grew a heady 26% and Liverpool grew at a not inconsiderable 12% - whereas an area like High Wycombe, in the south-east, grew 13%. Projecting forward over the coming five years, however, the expectation is that an area like Manchester will slow down towards 18.5% and the south-east will grow at 17.5% and this gap is expected to narrow as time marches on.
"If you look back over the past 5 years, house prices in Manchester grew a heady 26% and Liverpool grew at a not inconsiderable 12%... Manchester will slow down towards 18.5% and the south-east will grow at 17.5% and this gap is expected to narrow as time marches on"
Taking a longer view, we feel that areas in the south-east (where we can get reasonable levels of capital growth) carry a lower risk because of unemployment in the north where there has been a huge amount of concentrated development. If the current race for space continues, making the leafy suburbs attractive to tenants, the mid-term flexible rentals will increase returns, making a lower risk investment actually generate equal to or greater than the returns you can find in the north. We believe that you can make more money on your investment by being clever purchasing in the commuter belt of the south-east, considering future projected employment rates and a desire for more space as the Work from Homers flee the city in the search for more space. We believe this results in lower risk and higher yield.
Let us know if you are looking for a UK investment property and if this sounds like a possible course of action you might wish to pursue. We are honest and trustworthy and pretty fun to work with – but won’t try to sell you dreams we don’t think you could achieve.
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