29th December 2015
Buy-to-Let investors should head north to see better returns as London loses its appeal, says Stuart Law of Assetz for Investors…
The Conservative government has made it clear that buy-to-let investors are no longer welcome in London. The implementation of a 3% additional stamp duty levy on second homes and investment property combined with property prices in the Capital being at an all-time high are big deterrents. The introduction of the new Help-to-Buy equity loan in London which offers a 40% interest free loan up to £600,000 from early 2016 will inevitably add further upward price pressure in this already-overheated location as first time buyers begin to have the upper hand.
So where does Buy-to-Let still pay dividends, how do you mitigate the latest tax on Buy-to-Let mortgage interest and the new 3% stamp duty and which areas offer the best opportunities for realising a good return on investment? Assetz for Investors advises landlords to look North where lower acquisition prices, better potential for capital growth and higher yields can all be found.
With the Northern Powerhouse set to benefit from a variety of new infrastructure projects and greater prominence and investment over the coming years, Assetz for Investors has identified a number of hotspots and key areas which provide better opportunities for investors than many of the South’s traditionally popular locations.
As the table below illustrates, the best yields can be found in Manchester, Liverpool and Leeds with each offering market yields above 6%. Investors purchasing through Assetz for Investors however can expect yields of closer to 8% in these areas through their range of exclusively sourced investment properties.
Stuart Law, chief executive of Assetz for Investors, says: “The inevitable increases in property prices in the Capital following the foolish 40% regional Help-to-Buy policy means many home owners will be pushed into negative equity when the unavoidable price reversal takes hold. Buy-to-Let investors have an easier choice of where to invest and should look further afield.
“The impact of the new tax on mortgage interest is very pronounced in the overpriced South. An investor with £200,000 to invest in the capital would need a £400,000 mortgage to buy a typical £600,000 property. If the gross yield was a typical 4% and the mortgage interest rate was 4% and the investor was a higher rate tax payer, they would actually have to pay £4,400 per annum to own the property and live in hope of further price growth to avoid losing money year after year.
“If the same investor bought two £100,000 properties in the North for cash at a typical 7% gross yield then the investor would receive £9,100 per annum on their cash, before tax, and still benefit from full house price growth in that location.
“For investors seeking income rather than speculators hoping for house price growth perhaps now is the time to heed the Governments messages about Buy-to-Let and investing in London generally and look to the North.
“For people based in the South investing on your door-step should not be the first option. As prospective home owners are increasingly priced out of the Capital more people based in the South will be heading from here to build their livelihoods in the emerging Northern Powerhouse. The balance of power is now starting to lean towards the North.”
Manchester: Buy-to-Let properties make up more than a quarter of Manchester’s housing stock – the largest proportion in Britain. With investor yields averaging 8%, which are nearly double the London average, and significant potential for capital growth, Manchester was named Britain’s Buy-to-Let hotspot by HSBC in June 2015.
Sheffield: One of the main reasons that make Sheffield a top choice for property investment is the presence of two of the UK’s largest Universities. Sheffield has a youthful population and demand for rental property is extremely high. Currently, there are around 59,000 students in Sheffield (The Guardian, May 2015), who represent 10% of the overall city’s population.
Liverpool: Liverpool offers something for everyone with city centre living, coastal locations, suburban or countryside outlooks. In addition, Liverpool2, the redevelopment of the docks will provide further jobs and distribution through a state of the art £300 million deep-water container terminal.
Leeds: Leeds is the regional capital of Yorkshire and houses a number of major industries including communications, legal and transport and manufacturing. There are opportunities to work for top companies in the region and it has recently ranked highly in Moneysupermarket.com’s Quality of Living Scoring Index, above Bristol and Manchester. Average property prices are far from their peak in Leeds and people will be attracted to live there by the reasonable cost of living and comparatively low rents.
London: Capital growth prospects have traditionally been very high. The price of acquisition however is extremely high compared to the rest of the UK and yields in London are low compared to what is being achieved in the other main cities.
Bristol: Bristol is highly attractive as an investment opportunity, particularly given the current boom in the tech sector which is attracting innovative start-ups and young professionals alike. The presence of a world-class university and the student population also provides a significant boost. However, the cost of acquisition is considerably higher than the other hot-spots we have identified.
Cambridge: Property prices in Cambridge are now starting to rival London and as a result it is the third least affordable city in the UK. The community based around Mill Road which is slightly outside of the centre can still offer excellent opportunities for investors however with particularly high demand from young families, young professionals and students. Despite the high property prices, you can still find a good investment option in some niche enclaves.
Edinburgh: Edinburgh benefits from relatively low living costs and rental prices and has previously been ranked by the ONS as the happiest place to live in the UK. The presence of the university pushes up rental demand and makes this a desirable location for investment. However, the cost of acquisition is much higher than other Northern Powerhouse hot-spots like Leeds and Manchester.