The UK housing market can be more varied than some property investors realise, with certain regions and locations offering a superior return on investment.
For property investors looking to capitalise on the UK’s extremely strong rental market, finding a location with both high tenant demand and a good outlook for capital appreciation is important.
Keeping on top of trends when it comes to specific property types and target tenants can also make a difference, ensuring that you are offering the right home in the right area in order to attract the most desirable tenants. For example, city centre flats aimed at young professionals remain one of the most popular investment choices.
But new research from Benham and Reeves has revealed that there is often a correlation between high rental demand and rising house prices, meaning property investors who target certain areas can expect to achieve their returns through both rental yields and capital appreciation.
While house price growth in the UK has slowed significantly from its post-Covid boom, it has now levelled off at a more sustainable rate, with some locations continuing to see above-average increases.
North West top location for rents and prices
According to Benham and Reeves’ research, property investors focusing on the North West of England will find the biggest impact on house prices in relation to rental demand. In this region, the average house price in high rental demand areas is 33% higher than the regional average.
This means that in top-performing buy-to-let hotpots, the average property costs £289,863, compared with the North West’s average house price of £217,525.
In separate research from Savills, the North West of England is predicted to see property prices rise by a cumulative 30% over the next five years, thanks to the area’s economic growth as well as the ongoing high demand for property there among both renters and buyers.
In terms of its property price premium as a result of being in an area of high rental demand, the region surpasses the average across England of 23%, according to Benham and Reeves. This is based on an average house price of £302,393, compared with a cost of £372,055 to buy property in a sought after rental area.
Meanwhile, the average property premium is 30% in the North East, 29% in Yorkshire and the Humber, 28% in the South East and 25% in the West Midlands. In the East of England, the premium is 15% for property in an area of high rental demand.
Property investors getting higher yields
Rental yields have been on the rise for property investors, alongside soaring rents across many parts of the UK due to the level of demand surpassing the number of rental homes on offer.
Average yields now stand at 5.49% in areas of high rental demand, says Benham and Reeves, compared with 5.15% in lower demand areas, showing how important it is for property investors to select areas with a proven high tenant footfall.
Director of Benham and Reeves, Marc von Grundherr, said: “Things may not have been easy for buy-to-let landlords in recent years, as increased rules and regulations have been implemented to reduce the profitability of the average investor’s portfolio.
“However, it remains a strong and reliable investment, with long-term stability that often cannot be matched by other more volatile investment asset classes such as stocks or collectables.
“Of course, where you invest is as important as what you invest in and identifying high-demand areas is vital when maximising the returns available.
“What’s more, investing in a high rental demand area is also likely to protect the value of your investment in the long run, with properties in these locations commanding impressive premiums when compared to the wider region.”
If you’re a property investor looking for your next buy-to-let investment opportunity in the UK’s top-performing locations, get in touch with BuyAssociation today, or browse some of our current projects.
