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Residential Hotspots: The Buy-to-Let Market

With residential purchasers always on the hunt for properties in areas which will generate the best rental returns, it pays to do your homework when it comes to finding the prime locations in which to buy.

Residential Investment

“Invest in the South if you want equity, and North for rental return,” says Mark Ivimy, business development manager for PrinvestUK, explaining why it introduces buyers to developers in the North and North West of the country.


“Land values are lower so people can afford to buy decently priced residential investments that will provide them with a good rental return and not break the bank. To give an example, one of the developments we’ve been working with – at Studio 8 in Bolton, Lancashire – has seen buyers realise a nine per cent net rental return.


“The price you’ll pay before you even start looking at rent is more affordable in the North, plus there have been lots of conversions from office units to residential usage in that part of the country which means there are more properties for buyers to choose from in these areas.”


Market pressures

Right now it’s a buyers’ market with lots of choice for purchasers, thanks to a mixture of factors. Although the improving economic backdrop has seen consumer confidence pick up, house price inflation continues to outpace wage inflation. Over the last thirty years the average income of first time buyers has increased fivefold, while the price of first time buyer homes has increased nine times1. This has had a substantial impact on affordability and led to a huge number of people renting homes instead of buying.


Credit terms have also been squeezed since the financial crisis. Before the crash, borrowers were expected to come up with an average deposit of 8 per cent, but this has now increased to 20 per cent. Combined with higher house prices, this means that the average deposit requirement for first time buyers had gone up more than tenfold from £2,400 in 1980 to £28,750 in 20132.


This has resulted in a smaller number of buyers coming into the residential property market and reduced the overall level of transactions – a situation which is unlikely to change soon unless affordability begins to significantly improve.


Supply and demand

On the other hand, there is still a fundamental supply and demand imbalance. Estimates suggest a 40-year housing supply backlog and the recent Lyons Review calculated that 243,000 houses need to be built each year to satisfy demand – a figure significantly above the average of 137,000 delivered over the last decade.


Thanks to these levelling forces, forecasts for house price growth remain broadly unchanged from last summer, with an expected UK increase of around 6 per cent in 2015, and slightly lower annual price increases thereafter3.

A change in government also appears to have had a stabilising effect. “Recent under-confidence in the residential investment market was certainly pricing some buyers out the market,” says Ivimy, “but there is definitely more confidence within the UK now that we have a majority Conservative government in power, to maintain the consistency of the former Coalition’s work. In fact, we’ve also seen this increased certainty in the market attracting more purchasers. Within a day of the election result there was £100m worth of deals done in London alone on property valued at over £2m which, if a Labour government had been elected would have fallen under the proposed ‘mansion tax’.”

Northern values

With the UK’s economy strengthening, there are also other factors that make now the right time to consider buying residential property, such as the country’s improving transport infrastructure.


“The Conservatives have announced heavy investment in the North, and Manchester has its own centralised powers, so we hope to see this translate into an increase in property values,” says Ivimy. Predicting property hotspots in and around Manchester, regeneration in Bolton, “plus the increased proximity of London to Birmingham thanks to HS2 will all increase demand for residential properties in these areas.”


Profitability potential

“With the appeal of a traditional bricks and mortar investment remaining high, we believe the UK’s property market remains a good investment. It’s all down to the UK’s economic recovery continuing to gain traction and policymakers’ optimism for long-term sustained price and rental growth beyond 2015,” says Ryan Murphy, PrinvestUK’s investment sales manager.


“While some buyers could still expect double-digit returns, these returns are likely to be scarcer and require more skill to find than the economy-driven performance of last year, which is where we come in. PrinvestUK sources high-return UK properties, the majority of which come with a rental assurance for a set period of time, meaning that the rental income that a purchaser receives is contractually assured for five years.”


This also means that the purchaser should realise a minimum profit on their property before taking into consideration the capital appreciation of the property itself.


“Historically we’ve been pretty selective in the projects we’ve taken on,” adds Murphy, “but we appreciate that buyers want to create a balanced property portfolio, and residential properties form an important part of this for many of them, so we are very keen to ascertain what a buyer is looking for and help them find something that will complement their existing portfolio.”


“What’s more, any potential profitability is greatly enhanced through our selective approach to what we market, and our robust due diligence procedures. Of course, any investment comes with a risk, so we always advise purchasers to do their own research as well, but we try to reduce the risks within these processes and only work with experienced developers and operators. With our knowledge of the residential property asset class we can make the whole process as seamless as possible, and it’s this that best places us as the agency to assist purchasers overcome the challenges and unforeseen risks of the UK residential property market.”


To find out more about investing in residential accommodation call us on 0880 009 3080, or read about how we work with purchasers here.



1 CBRE:Housing Market Prospects, 2015 and beyond

2 CBRE: Housing Market Prospects, 2015 and beyond

3 CBRE: Housing Market Prospects, 2015 and beyond

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