Where are the current UK BTL hot spots?

Warren Lewis
29th March 2018
hot spot 2

The latest UK buy-to-let index from property finance experts, LendInvest, has shown that the Midlands appears unaffected by the UK's current house price growth slowdown, sending three of its largest cities into the top 5 places to invest - but where came out top?

According to the analysis of 105 postcode areas around England and Wales based on a combination of four critical metrics: capital value growth, transaction volumes, rental yield and rental price growth, Britain's oldest town, Colchester, climbed to first place after a sustained period in the top 3.

Despite house price growth slowing throughout the UK, Colchester still manages to boast the second highest rate of capital gains in the Index at a lofty 9.98%.

With quick commuter links to London, and lower average house prices than nearby Chelmsford and Southend-on-Sea, Colchester has seen more activity in the market than this time last year with prices gearing towards the highs seen in 2007 and rental growth remaining strong.

Second place: Northampton

Northampton last featured in the Top 10 of the LendInvest BTL Index in January 2017 (#8), and has climbed 19 places since the last quarterly Index (#21 in December 2017).

Contrary to the rest of the UK, capital gains in Northampton have increased in the last three months, and it is now the only market in the country that has enjoyed capital gains upward of 10% in the past 12 months. With moderate growth in the rental market and attractive yields, this East Midlands town has become one to watch.

Third place: Leicester

The Leicester market has continued its rise to third in this quarter's Index, featuring in the Top 10 for the first time in December 2017 (#9). Leicester’s climb up the table adds further weight to the Midlands markets fast becoming a great alternative to those in the South East that have historically dominated the Index.

House price growth has been strong in Leicester, with further growth expected. However, it is rental growth that really underpins the strength of the Leicester property market, ranking third highest in this category across the country.

New entrants

Markets in the Midlands continue to rise up the rankings, with the East Midlands leading the charge. But the West Midland markets have followed suit, with Birmingham rising six places to fifth place (#11 in December 2017), strong yields providing investors with attractive buy-to- let opportunities. Whilst metrics have struggled in London, and the markets for the commuter belt have dipped below those of other regions across the UK, there are still upcoming opportunities in the South East: the appearance of Brighton (#8) in the Top 10 is proof of that.

Markets to watch

With focus beginning to shift away from the South East for the best investment opportunities, several markets in the South West have risen up the Index. Bristol is currently #12 in the Index (#19 in December 2017), boasting very strong rental growth over the past year. Bristol leads the way for the South

West, but it is closely followed by Swindon, Truro and Gloucester (#17, #19 and #21 respectively). Much like Bristol, relatively strong rental growth is a key metric for these markets and adds to the appeal of the region to buy- to-let investors.

 The top ten

1.  Colchester

2.  Northampton

3.  Leicester

4.  Luton

5.  Birmingham

6.  Manchester

7.  Ipswich

8.  Brighton

9.  Rochester

10.  Norwich

Ian Boden, Sales Director at LendInvest, said: “We don’t subscribe to the idea of a mass house price growth slowdown throughout the country. Instead we wanted the Index to show us where the slowdown is hitting hardest, and where the opportunities continue to abound for UK landlords and property investors alike.

Predictions for the overall growth of the housing market remain positive for the year ahead but this quarter’s Index indicates that house price growth slowdown is impacting on different regions to different degrees. There are reasons to be cheerful in many places around the country. Looking at the South West and the Midlands in particular, we can see modest slowdown occuring that’ll keep market activity buoyant.

Striking the right balance when it comes to making property investment decisions is crucial; however, the current limitations in house price growth mean fewer opportunities in the market to perform a traditional “flip” of a property to get a return. We can expect to see investors taking longer-term positions in property as they look to to yields and rental price growth as valuable metrics in the short-term to determine the profitability of an asset. The best way for investors to take advantage of the volatility in the rental market is to seek out buy-to-let opportunities.”

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