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As an investor, it can be a challenge to know where to look for your next property. Some people claim you have to invest in the north, other seemingly savvy sources suggest the south, and some even swear that London is the only place to be.
To answer this question (where is the best place to invest in property in the UK?) you need to understand what to look for and what actually makes for a good investment opportunity.
In this article, we take a closer look at some of the underlying principles that dictate what makes a good investment location, and what makes a bad one, we take a look at five of the top cities for investments, and explore the 25 hottest postcodes in the UK for investment in 2022.
There’s no point in investing in a property that costs more to operate than you make in rent each year. You can calculate the property yield by looking at the property price and annual asking rent.
Use our free rental yield calculator.
For example, for a property worth £200,000 with a monthly rent of £1,500, the rental yield would be:
((£1,500×12) / £200,000) x 100 = 9%
The higher the rental yield of the property the better the investment is. However, this rule alone isn’t enough to judge a potential property.
Vacancies are expensive. You still have bills to pay and a mortgage. A property that is empty is like a house without a roof, it’s going to leak heat (or money in this metaphor). There are a few things to look at to determine the potential demand of an area. Generally, the people renting are younger professionals or students. Look at locations with a large student presence or areas with large company HQs and plenty of employment opportunities.
How many other rentals are in the area? If there are hundreds of listings then you have to be aware that, when it comes time to fill your property, you are going to have to compete with these listings. And if there isn’t enough demand you may have to spend extra to boost your listings, and even then it may sit empty for some time.
Are businesses investing in the area? Are new companies opening? Is there investment in infrastructure (such as the HS2)? All of these things will impact the long-term value of the property, impact the demand in the region, and affect potential asking rents.
All stats are averaged across property types and sizes. Terraced houses and flats are the cheapest property type in each location, with single bedroom properties commanding the lowest rents. Rental yield is calculated before vacancy rates and expenses.
With the second-largest banking and financial sector in the UK after London, and the centre for law, Leeds is overflowing with business and employment opportunities. Institutions like Leeds Teaching Hospitals NHS Trust, Jet2, and Channel 4 call Leeds home, which has since attracted thousands of aspiring young professionals. Leeds is also set for historical growth from regeneration, with South Bank Leeds set to double the size of the city centre by creating 35,000 new jobs and 8,000 new homes.
A report from Zoopla found that Manchester is one of the most in-demand UK cities in 2022. Alongside this report, Oxford Economics recently estimated that Manchester will see the highest economic growth rate out of all major UK cities, meaning 2022 may be the perfect time to invest and take advantage of the city’s buy to lets.
Birmingham has a young population with about 40% aged under 25 and as a result a high demand for rentals. Plus, with major regeneration efforts like the Big City Plan and HS2 set to create thousands of new jobs, average rents will continue to rise, making Birmingham an excellent choice if you want to know where to buy property.
Nottingham features over 50 Business headquarters, including Boots and E.ON, plus the likes of Rolls Royce and Midlands Aerospace call the city home. On top of this, they have a large student population with approximately 13% of Nottingham’s residents being students, making a student property investment a popular choice.
Liverpool is the most affordable city on this list. And though it also has a lower average rent there are some excellent opportunities to achieve a solid rental yield. Once you factor in the young city centre population (75% aged 17 to 29) and rental prices which are expected to rise over 2022, Liverpool looks to be a good opportunity for investors.
Despite having the highest average property prices in the UK (by a long way), London can offer good returns with high rent rates to match their property prices. Property prices in London vary widely depending on your location, with average prices in Central London being the most expensive (£1,495,606), and the least expensive area being East London (£513,309). Last year most of the properties sold in London were flats.
The average price of these flats was £526,561. The property type with the next most sales was terraced properties which sold for an average price of £766,549, while semi-detached properties fetched an average of £747,623. With that being said, these more expensive properties also command much greater rents, with average property rents in London of £3,843 pcm, with the median one-bedroom rent of £1,850, and a medium three-bedroom property renting for over £4,000.
A whole range of factors can affect the viability of an investment. As such marking a whole city as a ‘hotspot’ is counter productive. This can be a great way to start your investigations, but cities are big places. Some areas certainly will make for a good investment opportunity, some areas, however, less so.
For example, while some property and locations in London offer good opportunities, many of the locations in London offer some of the worst yields in the UK, and unless you’ve got the capital to bank on long term capital gains and can afford short term losses, then investing in these locations could end up losing you money.
By looking at regions with more nuance you can locate specific top-performing postcodes which offer the greatest potential yield (of course it will still come down to the property).
According to Track Capital the top 25 best postcodes to invest in property in the UK are as follows:
The Cambridge-Oxford Arc is the final region on our list of places worth considering to considering for future investments. This is the commuter belt between Oxford and Cambridge, it has fast access to London and more affordable properties, this region is in high demand with renters, especially with the increase in work from home that has been adopted by many companies since the start of the pandemic.
On top of this, their local economies are strong and boosted by their Universities. With approximately 4 million people living in the area, several tech clusters, and ten universities these sectors need high quality renting stock and lots of it.
Finally, there are massive plans to improve the infrastructure in the area as well as tens of thousands of new homes.
Read more: Where To Invest In Property In The UK In 2021
Identifying a great property investment is about finding a property that will receive a good rental yield and perhaps more importantly appreciate in value over time. Some locations in the UK have appreciated by as much as 100%, others have actually decreased in value. This appreciation won’t affect every street in a city equally, nor will it affect every area equally. For example, the average price of terraced houses in London jumped from £112,207 in 1995 to £989,337 in 2021. That’s an increase of +782% in 27 years.
Once you’ve located a good location for purchasing an investment property, you then need to understand what property type will yield the best returns, and come to terms with all of the important regulations to ensure you operate a professional, scalable rental business.
Wherever you decide to invest, make sure you have the tools and knowledge to track and manage your rentals. Landlord Studio property management software allows you to accurately and efficiently track your property finances, automate tenant communications, set reminders for important events such as safety inspections, and run comprehensive financial reports for tax time.
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