A recent Zoopla report has highlighted a significant trend in the UK’s property market: Northern and Scottish cities are now the prime locations for buy-to-let (BTL) investors seeking high returns. This shift is primarily due to increasing rents and decreasing house prices in these regions.
Rising Rents and High Yields
Zoopla’s analysis predicts a rise in rents of between 5% and 8% for the upcoming year. This increase is attributed to a robust demand for rentals, which currently exceeds the five-year average by a third. Despite this growth, the report suggests a potential slowdown, with rental growth expected to halve to around 5% by 2024.
The Best Cities for Investment
Sunderland, Dundee, and Burnley emerge as the top cities for BTL investments, offering average gross yields around 8%. These locations present a lucrative combination of low property prices and high rental rates. Following closely are cities like Glasgow, Liverpool, Middlesbrough, Aberdeen, Blackburn, Hull, and Grimsby, with yields between 7.07% and 7.90%. These areas are particularly appealing due to their affordable housing, strong employment prospects, and substantial student populations.
Regional Leaders
When it comes to regions, the North East, Scotland, the North West, Northern Ireland, and Wales lead with average gross yields exceeding 6%, peaking at 7.34%. This outperformance is primarily due to lower property costs and rental rates compared to other parts of the UK.
Conversely, London, the South East, and the East of England lag behind, offering lower yields below 5.2%. London records the lowest yield in the UK at 4.92%, influenced by higher mortgage rates, regulatory changes, and modest house price growth. Additionally, London’s rental market is reaching an affordability limit, leading to a moderation in tenant demand.
Investment Outlook
The outlook for BTL property investment remains positive for the short term, with rental prices expected to increase. However, investors should be cautious of the potential shift in the rental market. Factors such as the end of pandemic-related effects, slower job and wage growth, and a reduction in mortgage rates since last year are expected to weaken rental demand.
In summary, while the BTL market in the UK is experiencing notable changes, northern and Scottish cities currently offer the most promising opportunities for investors, with the potential for high yields and growing rental income. However, as with any investment, market dynamics can shift, and investors should remain informed and adaptable.