Up until recently London has been the favoured UK location for investors from all over the world to buy-to-let. However, during the last couple of years we have started to see a change. According to Savills, the London property market has “matured”. Prices are not rising as dramatically as they used to, and nominal house price growth has stabilised at 2.3 per cent per annum. This is well down on the 8% annual average growth rate it has experienced since 2010. In fact, over four-fifths of the markets covered by the London City index are registering real house price falls.
Savills are projecting two years of zero price growth for prime central London house prices which they attribute to concerns over Brexit and its expected impact on employment. They predict that, in the next five years, London properties will rise in price by just 20 per cent, less than half of the 52 per cent long-term average between 1979 and 2014.
As a result of the lack of capital gains potential in London, many investors are turning to other cities in the UK that offer more prospects of higher capital growth. In September, Edinburgh showed the fastest property price growth at 6.7 per cent per annum, overtaking Manchester with 6.5 per cent and Birmingham with 5.9 per cent. Leeds and Liverpool also experienced higher growth than London with 4.3 per cent and 3.2 per cent respectively.
Hometrack expect house prices to continue to rise in regional cities, a trend that has been growing since 2013. Its latest UK Cities House Price index shows that there has been a rise of 40 per cent in the number of homes bought in the regional cities since then. Liverpool has seen a rise of 8 per cent in the number of properties sold in the last 12 months.
London has also seen a falling demand for rental property as young, skilled people are attracted to northern cities by the creation of jobs and more affordable rents. The force behind this is the “Northern Powerhouse Project” which is boosting the local economies and driving business growth. As a result, Manchester has become one of the UK’s most prominent tech hubs and Liverpool has experienced a rise of 22 per cent in the number of start-up business in the first quarter of this year, thanks to the government-backed Start Up Loans Company (SULCo) which has lent a total of £3.5 million to new businesses in there since 2012.
The average price of properties in northern cities is eminently affordable, running at around a third of the cost of properties in London. The increasing demand for rented homes, along with the potentially stronger returns from capital gains and cheaper prices, make buying-to-let highly attractive to investors.
What it the Northern Powerhouse?
The Norther Powerhouse project’s aim is to boost the local economies of the north of England by investing in skills, innovation, transport and culture. The government has handed power back to Northern cities away from Westminster. They have also allocated £3.4 billion in growth deals to the Northern Powerhouse – providing targeted financial support to locally-determined projects in order to unlock growth – directly backing business growth right across the north, giving the region the power and resources they need to realise their huge potential.