Some will say that the introduction of the new stamp duty structure forced many investors to look outside the capital for a good return. I see it more like the final nail in the coffin as yields had shrunk to an unattractive level in most areas and developers of new homes were greedily pricing two years ahead of the market.
The State of Property Investment In London vs the North of England
London is a robust market and the sheer size of the landscape means that there are still areas of opportunity for property investment.Having sold London properties myself for a number of years, I have seen some truly amazing profits being made by property investors. Whilst the recent decline in sales and tax changes have not killed the London market, they have cast some doubt about the likely levels of capital appreciation, which is critical if buying with such low yields expected.
These doubts have encouraged property investors to look outside the capital and at other opportunities. With many other investment types seen as high risk such as overseas property, fixed term cash investments and alternative investments, many investors have looked to the north of England for property investment opportunities.
I would personally encourage investors to look at the opportunities currently available here in the north of England, but success is not guaranteed. To increase your chance of success, you need to understand some key differences between the two markets.
The property market differences between London vs. The North
The list below is by no means exhaustive, and generally refers to buy-to-let property.
Pricing – don’t be drawn in by cheap pricing! Just because we eat pies and wear flat caps, it doesn’t mean that everything is cheap. In the major cities, the best locations will be priced accordingly and if something looks too cheap, there is usually a reason for it.
Growth – growth over the next 10 years will be more prevalent in the large cities and in new properties. There are several key areas of regeneration to look at for certain growth but be aware of the timelines associated with this. Look for areas close to where price increases have already been experienced. Heat maps are a great tool to identify these areas.
Yields – much higher yields can be experienced in the north, but check that forecast returns not only match with existing rents, but are also sustainable. With inner city development at its highest levels, the attraction of suburban properties is likely to decline, particularly amongst young professionals. Much higher yields can be achieved through short-term lets if your lease permits it and if your property is in a desirable location.
Deposits – although you will be used to putting down 5% or 10% deposits in London with nothing else until completion, this simply doesn’t exist in the north and the funding of projects for developers renders it almost impossible. Required deposits are coming down now and you can find opportunities with 20% to 25% required.
Cities – one key difference between the likes of Manchester, Birmingham and Liverpool and the capital is the size of the city. Northern cities are a fraction of the size and although they are growing, and nearby suburbs may form part of the city in the future, this will take time as transport links improve. If you want to be sure of high occupancy levels, you need to be central.
HMO Properties – HMO properties work well in London due to the high cost of living, the shortage of property and the number of young professionals. With the number of new apartments being built in the major cities, while there may currently be a market due to the housing shortage, young professionals will ultimately be drawn into the city centres where rents are just as affordable when you consider total cost, including travel etc.
Apartment Size – In London, you get what you can afford. Having been spoilt with larger property sizes being more affordable in the north, there is more of a desire for a spare room here. Single young professionals buy two bedroom apartments. This is changing, particularly in the prime areas of the large cities but is still prevalent in most parts. This is another reason why the attraction of HMO properties will be left to less desirable tenants.
Parking – In the north, everyone drives! Now this is obviously not 100% true and is a stereotype, but it is one that everyone should assume when buying here. Planning restrictions in most cities will usually only allow for up to 50% of apartments to have parking, mainly to encourage the use of public transport in city centres. In some developments I have seen this to be as low as 5%. If you are buying an apartment without parking with the intention of renting out on an AST then you are limiting your property to around 10% of the market.
Transport Links – It amazes me how often this is overlooked. With the exception of a few smaller systems, there is no underground outside London. Most cities rely on a good road network but most are congested. Within the city, most workplaces have limited parking, so people rely on trains, buses and trams, so being close to a station is critical.