Words by Rosie Hamilton
In the UK, property is a consistently appealing investment. The passive income that comes from renting a property out, combined with the potential to capitalise on significant house price growth makes it look like a safe and effective place to invest money.
But, not all properties are created equal. Which ones are going to get you the best rental yield? Which areas of the UK are likely to see the greatest house price growth over the coming years?
The basics
Before you start, think carefully about what type of property investing you want to do.
Are you looking for the passive income that comes from renting a property out? Or are you interested in the potential gains of renovating and selling for a gain?
The types of property – and areas of the UK – that you decide to invest in will be quite different depending on your investing goals. In this article, we’ll cover some of the best options for different types of investors.
The key thing to keep in mind is that like most investments, property investing is most effective if you have a long term strategy. While flipping a property might give you a profit, the real gains come from playing the long game.
As with all investments, property investing can be risky, and you may not get back all the money you put in. Before you decide to take the jump, make sure to talk to an independent financial advisor.
Where are rental markets strong at the moment?
Given the unusual conditions of 2020 – with lockdown, and an increased number of people working from home – activity in the rental market is looking a little different to normal.
Many reports, including from Rightmove, suggest that more tenants are looking for larger homes, which means many are moving further away from cities. Demand from tenants has pushed monthly rents up in many suburbs and commuter towns. Outside London asking rents rose to a record average of £972 per month in the final quarter of 2020.
But, the highest growth has been seen in Durham, Keighley, Wigan, and Rochdale. All are areas that boast lovely outdoor spaces, large homes, and are within commutable distance from larger cities.
What about London?
London is infamous for its high property prices, and large monthly rents. But, is it the best place to invest currently?
By the end of 2020, asking rents in central London had fallen by almost 13 per cent. This was due to a combination of tenants moving away, and a number of short lets that could no longer be used coming onto the market as long lets. This excess of supply and drop in demand means that rental yields continue to be lower than average in London.
Add to that the price premium of buying property in London and it may make you think twice about investing there.
Some areas around the edges of the capital are however showing promise. Wembley, Coulsdon, Greenford, Ilford, and Purley have all recently witnessed strong growth in tenant demand.
But, is this a long term thing?
Tim Bannister, director of property data at Rightmove, suggests that this trend is only temporary, he said: “There’s no doubt that higher rents will return once life goes back to some form of normality, but it will be the city centre properties with gardens and balconies that will be able to command the biggest premiums.”
If you’re looking to invest in rental property in the UK now, the key things to look for are space and access to the outdoors. Even if we see a wholesale return of tenants to cities, it’s likely that the desire to live somewhere larger will remain. These types of properties will be able to demand a rental price premium in the future.
Where are house prices low at the moment?
If you’re more interested in investing in property for its potential value gain, rather than rental yield it’s important to consider where house prices are currently low – and which areas have the greatest potential for future growth.
Asking prices are currently lower than normal in Manchester city centre, Edinburgh city centre, and central London. However, given the focus of employment and industry in these areas – along with ongoing infrastructure projects – it’s likely that these areas will continue to have a strong appeal into the future.
This is demonstrated by the continuing – and fast paced – house price growth in the areas immediately surrounding these areas. Larger homes in the county of Greater Manchester for example, are seeing one of the most rapid rates of growth in the UK, according to Zoopla.
But, why are they low?
Prices are currently lower for flats, and properties without outdoor space, because these types of properties are no longer as appealing. Homeowners priorities have changed dramatically over the past year, and it’s unlikely that these attitudes will change anytime soon.
If you choose to invest in areas where prices are lower than average, look for homes that offer more than minimum space, and those with gardens or balconies. These are likely to have a much more enduring appeal than small city centre apartments or studios.
