Location, location, location.
It’s the mantra we hear for property buyers the world over, because after all, properties have different values in different parts of the world – and this varies as wildly as the individuals who live there.
The location of property can make substantial differences to the value of the investment over time. This can be location in terms of the town or region, or in terms of handiness to infrastructure – such as schools, transport, and workplaces.
First time buyers should understand there are two ways to view the value of their property: in terms of rental yield, and in terms of capital growth. When buying property, I will always recommend buyers do their own independent research by speaking with local estate agents and comparing like-for-like properties in the same area to get a sense of similar rents being charged in the area. Although for capital growth, this can be a bit harder to research and buyers will have to rely on research reports from reputable agencies and banks.
This crucial percentage we calculate as follows:
Gross Rental Yield: Annual rental income (Weekly rental value x 52) divided by Property value, multiplied by 100.
According to the Australian Property Investor Centre, “capital growth is the increase in value of your property portfolio over time and should be considered alongside the property's yield.”
Some cities “have had periods that have seen many home owners with properties that have, in some cases, doubled in value over a short period of time.”
Buyers of UK property, particularly expatriate investors using foreign currency, should also be aware of the favourable effects of currency play. With the Brexit referendum in June 2016, the value of the pound sterling tumbled in relation to most other currencies. As the pound recovers from that fall, the value of the investment increases in the foreign currency.
Here’s an example of how that works:
Looking at these figures, we see that in the first five months of 2017 the Pound has strengthened 8.3% against the US dollar and 10% against the Australian Dollar.
In financial terms, this means that if you invested USD100,000 into a UK property, your Dollars would now be worth USD108,300. This means growth of USD8,300 in 5 months, achieved by using a simple technique called currency play.
So, with these two factors in mind, where are the current UK hotspots for buy-to-let?
LendInvest’s buy-to-let index
One very reputable source for this information is LendInvest’s buy-to-let index who compile data from the UK Land Registry and Zoopla.
Investors should keep a keen eye on this quarterly report for an overview – or a pulse check – on where’s currently hot.
As of June 2017, the top ten postcodes for rental yield across the country are:
Whereas, the top ten postcodes for capital growth across the country are currently:
A word to the wise
While it’s useful to be able to access LendInvest’s free quarterly report, we always recommend to our clients to see these in context: these reports are the product of statistical analysis, and they should be seen as a pulse-check on what’s hot and flourishing at the moment.
Crucially, what these reports won’t show are patterns over time or into the future. In other words, what’s currently topping the list won’t necessarily be in six or nine months from now.
For that reason, we recommend thinking seriously about the attractiveness of areas in the North of England, particularly Birmingham and Sheffield, where we believe that lucrative gains will be made over the long term due to underlying strength of fundamentals, as a shift in economic focus from London occurs.