New research reveals where in the UK performs best for rental yields and annual change in house prices. Read on for expert insight into where you should focus your property investment plans.
With rising mortgage interest rates, rental yields are becoming increasingly important for landlords. So, which regions should property investors focus on?
New research from Sourced Franchise analyses annual changes in house prices, rental values, and rental yields across all regions in England. We can use the results to determine whether the North or South are performing better in the housing market, helping you decide on your next property investment plans.
Annual house price increases
In the North, average house prices increased from £205,875 to £211,392 in the year to May 2023, marking an annual growth of 2.7%.
In contrast, average prices in the South grew by just 0.8%, from £385,719 to £388,917.
On a regional basis, the North maintained its lead, with the top-performing regions over the year all based in the North of England. The top four areas for annual price growth in the past year were:
- The North East (4%)
- The East Midlands (3.4%)
- The North West (2.7%)
- The West Midlands (2.2%)
In comparison, the best-performing southern region was the South East, with a growth of just 1.5%.
Annual rental value increases
However, the North-South divide is less distinct when looking at annual rent value increases.
The average rent value increased by 8.7% in the Northern housing market, from £759 to £824 per month. In contrast, annual growth in the South was much more impressive, with rent values rising from £1,255 to £1,374 per month, an increase of 9.5%.
Looking at this regionally, London achieved the most substantial rental growth at 12.5%. The capital was followed closely by the West Midlands (10.8%), the South East (9.5%), the North West (9.5%) and the East of England (8.9%).
As such, the report determines that the performance was relatively evenly split between North and South in terms of annual rent value increases.
Annual rental yield increases
When it comes to rental yield increases, there is a clear winner.
Across the North, average rental yields were 4.7%, compared to 4.2% in the South.
The report found that the strongest yields in the UK are located in the following regions:
- The North West (5.5%)
- Yorkshire & Humber (4.9%)
- London (4.7%)
- The North East (4.7%)
- The West Midlands (4.4%)
Chris Kirkwood, director at Sourced Franchise, said: “There has long been a disparity between England’s Northern and Southern housing markets.
“But historically, the common narrative has been a booming South and a struggling North.
“Our latest analysis proves that when it comes to property investment, it simply isn’t that black and white.
“The North is now outperforming the South on multiple fronts and is, in many ways, now the driving force of positive growth.”
He continued: “For property investors, the North now offers much better opportunities.
“Not only are prices significantly more affordable than the South, making it the more accessible market, but returns are also markedly stronger.
“Much of this is being driven by a shift of national focus away from London and towards cities such as Birmingham, Manchester, Liverpool, and Newcastle.
Kirkwood concluded: “We fully expect this pattern of Northern dominance to continue into the foreseeable future.”
Where should you invest in buy to let?
Where you should invest in buy to let depends on many factors, such as your location, whether you’re self-managing the property or using a letting agent/management company and your long-term property investment plans. However, factors such as house price increases, rental yields, and growth should be contributing factors.
If capital gains on the investment property are your most important consideration, you’ll want to look at areas where property prices are steadily increasing to maximise that return. If your investment plans include adding value to properties via refurbishment, or you intend to raise capital to fund further purchases, you’ll want to be confident the value of your property is likely to increase more than in other areas.
However, if yield is the most important factor when assessing the profitability of a buy to let, higher-yielding areas or locations with increasing rental prices are potentially more important to you than capital gains. Areas with rising rent prices often indicate growing tenant demand, meaning shorter void periods between tenants and potentially increasing yields simultaneously.
While it’s essential to do more in-depth research into the area you’re looking to invest in, this research should give you an idea of which UK regions you should consider starting your search.
6th September 2023