London buyers dominate Northern buy to let market

South-eastern buy to let investors are being enticed out of their own back yard to cities such as Manchester, Liverpool, Preston and Salford by stronger returns and lower entry level prices. Average gross yields of 8% in Manchester compare to 4.5% in London, while a typical two bed investment property costs in the region of £90,000 versus £300,000 in the capital.

Speculation of a cooling property market in London and the South East is impacting on investor confidence and driving them to seek alternative locations such as northern cities, where prices have risen at a more sustainable rate and demand from tenants, particularly young professionals, remains strong. The relocation of the BBC and developments such as MediaCityUK have also helped boost the profile of the North and attracted investors from outside the region.

Of those London based investors buying in the North, a significant proportion (42%) are cash buyers. This is largely due to the lower entry point which means that many investors don’t require borrowing. They are keen to de-risk the investment and avoid overleveraging, particularly as many are approaching retirement age and are looking to boost their retirement income. One, two and three-bedroom buy to let properties in new build developments of up to five years old are most popular, offering a low maintenance and hassle free investment.

Graham Davidson, director of Sequre Property Investment commented:

“The buy to let market in the North of England, particularly in hubs such as Manchester and Liverpool, is now being driven largely by money from London and the South East. Investors have benefited from huge house price growth in the south over the last few years which has sent the equity in their homes and buy to let portfolios soaring. Now they are seeking new investments which will deliver strong rental returns as well as steady capital growth, at a time when doubt is being cast over the future of the London market.

These are mainly professional investors who are comfortable with a ‘hands off’ approach and are unconcerned about owning property in different locations. It’s all about the rental returns and delivering a secure monthly income.”

Case study

IT Consultant Matthew Earle, 35, lives in south west London and is currently in the process of adding a number of new investment properties in the north of England to his portfolio. These are spread across northern cities including Manchester, Hull and Sheffield.

Matthew said: “My main focus is on generating a strong rental income and there’s no doubt that yields are much higher in the north. Purchase prices are often under the stamp duty threshold too, which makes a big difference to my buying costs and it can be possible to negotiate real discounts off the purchase price, giving instant equity. In my experience, tenant demand is strong and I’m hopeful of steady price growth over the long term.”

Matthew is taking a long term view of his investments with a focus on rental income and strong cash flow at this stage, with a view to funding his future retirement through his portfolio.