There are still many who believe that the current trend of seeking solitude away from busy urban centres is temporary. Given time, millions of UK workers will decide to move back to the city in order to be close to their place of work.
With house prices having increased by more than 10% on average since this time last year, the UK’s real estate sector has never looked more appealing as a way to secure best investments for the future. Particularly given the projections for the year ahead, during which further explosive growth is practically assured.
But as things stand right now, all the action is taking place outside the capital. London’s appeal in the eyes of investors is lower and it has been for some time. Domestic and foreign investors alike are increasingly setting their sights on more northerly parts of the country.
The cities of Leeds and Manchester, in particular, are catching the attention of investors. Birmingham has also become a hotbed of investment activity, a city almost entirely overlooked by investors until recently.
What is it about these parts of the country in particular that has captured the imagination of the real estate investment community? Why are these and other cities towards the north of England proving so much more appealing than London?
Initial Capital Entry
For one thing, London is still prohibitively expensive for many (if not most) property investors. Despite the fact that the average house price growth in London has been comparatively modest, it still costs more to buy a home in London than anywhere else in the UK or for that matter, most cities in Europe.
To illustrate the point, here is a brief overview of the current average asking price for a property in several major cities in the UK:
- Lower Capital Entry
Because of London’s affordability barrier, purchasers are looking for other places to invest in order to maximize their profits. With average property prices in London over double the price of most other regions in the UK, yields and capital growth are often considerably lower in the capital.
- London– £488,500
- Manchester– £188,900
- Birmingham– £179,200
- Leeds– £181,600
Purchasing a property in London is therefore only a realistic prospect for those who are already sitting on considerable wealth. Not to mention, investors willing to take risk on a region of the UK where property price growth is significantly slower than almost anywhere else in the country.
- Higher Rent Yields
Buying and selling houses in London for a quick profit is no longer a viable choice. At least, in the sense that it is nowhere near as easy to pull off as it once was.
Elsewhere, the buy-to-let sector in London is not nearly as lucrative as you might assume. The capital may be home to the UK’s highest average monthly rents, but the outlandish costs of picking up a BTL property eat into buyers’ profits in a bigger way.
Again, a look at how rent yields on average differ from one region to the next:
- London– 2.83%
- West Midlands – 3.85%
- North-West– 4.69%
- Yorkshire & The Humber– 4.56%
For many investors, the prospect of average rent yields of less than 3% coming by way of a hugely expensive property investment holds little appeal. Particularly when considering the possibility of almost doubling this yield by picking up a more affordable property elsewhere.
- Growing Demand
Why is demand for properties outside London skyrocketing?
For the time there is no practical reason why home purchase and renting decisions need to be based on proximity to the workplace. Consequently, homeowners and renters are finding themselves able to afford much bigger and more desirable homes up north than their budgets would stretch to in London.
Secondly, cities like Manchester, Leeds and Birmingham have been transformed beyond recognition over recent years. Billions have been invested in countless development and redevelopment initiatives, resulting in stunning cities every bit as appealing as London without the excessive living costs.
The events of the last 18 months have caused millions of people to rethink their priorities. For many, what was once an appealing aspect of life in the big city is no longer important; crowds, chaos and congested commutes have been swapped for quieter and simpler lifestyles in less densely populated parts of the country.
All of which explains why demand for rental properties in Manchester are up almost 70% year-on-year, while Birmingham saw a 25% rise in rental demand during the first three months of this year alone.
For the foreseeable future at least, the trend of leaving the big city behind for a new life up north shows no signs of abating.
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