University Cities as top BTL investment hotspots

When it comes to investment in the UK, there are many factors that one needs to look into before making a purchase decision – a key component would be the type of property followed by the location that would provide the best returns.   

A savvy investor would look into investments that appreciate with time and offer good rental returns. With international properties raking in high returns, striking while the iron is hot in the buy-to-let sector, would be a preferred choice for smart investors.  

TotallyMoney, a credit report company, conducted a survey of 580, 000 properties across Great Britain in order to rank buy-to-let (BTL) yields from the highest to the lowest.

The survey discovered that properties located in areas with a high density of students generated the highest rental yields.

This might not come as a surprise considering that many world-renowned universities hail from the UK: 10 of the world’s top 100 QS-ranked universities is from the UK, making it the second highest nation on the record.

The influx of students into the UK has resulted in the growing demand for commercial properties such as purpose built student accommodation (PBSA) and residential properties situated at these university cities.

CBRE’s first-ever Student Accommodation Index also revealed that capital value growth across all student properties in the UK was 6.5% as of September 2018, compared to just 4.5% the previous year. The net rents also showed a rise of 3.4% over last year.

The survey also highlighted particular regions in which the student population is noticeably high due to the presence of established universities. Cities such as Liverpool and Manchester boast some of UK’s highest rental yields.

Liverpool


Liverpool is the second best university city in the UK. Source: Liverpool Echo

With a combined student population of 70,000 and three well-known universities,  Liverpool has helped boost demand for rental properties, making it the second-best BTL  city.

Student properties near postcode L7, where the University of Kensington is located, generate an average rental yield of 9.79%, whereas accommodation near the city centre, close to the University of Liverpool, has average yields of 9.33%. A total of six Liverpool postcodes are in the top 25 best buy-to-let areas for 2018.

Liverpool was also voted as the region with the best city life in the National Students’ Choice Awards. Students describe it as being very energetic, spirited, ambitious and an amazing city overall to be in

With the rising number of international students choosing Liverpool as their preferred destination for tertiary education, BTL properties with close proximity to universities promises a better rental yield.  

Manchester


The University of Manchester, one of the top universities in the UK. Source: New York Post

With four internationally ranked universities and a combined student population of 100,000, Manchester has a strong presence in the BTL market.  The city was rated by QS ranking as the third best university city in the UK.

Manchester has an average rental yield of 7.07%. Properties around the University of Manchester – which has the largest student community of all UK universities – provides a sustainable rental yield of 6.89%.  

As the UK’s second biggest city and second most affordable city for students, Manchester is ranked 51st for affordability, hence why a substantial amount of students fly into Manchester for their tertiary education. The affordability is all the more reason why BTL properties near universities are of high demand.

Birmingham

Get bullish with Birmingham. Source: CSI Prop

Birmingham is seen as a good alternative for investors who are looking to obtain good rental returns and intend to avoid buying in cities with higher property prices.

The UK’s second largest city is home to two leading universities, Aston University and Birmingham City University, where property values have soared due to rising demand. Recent research by Urban.co.uk revealed that Birmingham has the highest returns for property surrounding a university, with an impressive 11.66%!

Adam Male, founder of Urban.co.uk believes that the northern region provides a much more attractive proposition in terms of rental yields and these areas also happen to be homes to some of the UK’s top universities.

These are some aspects that landlords should consider when choosing to invest as it gives them a more affordable, yet promising step up the investment ladder.  

Are University Cities the next big thing?


UK student housing sector is surely on the rise. Source: BSES

For investors who are looking to take advantage of the pound’s affordable rate, properties in university cities are rather attractive investments.

Mark Moloney, head of brands and communications of TotallyMoney said, “Year after year, there’s a constant flux of students looking for somewhere to bed down for the night, so it’s no surprise that university cities offer landlords the highest buy-to-let yields. Demand is high, and landlords may use this as an opportunity to drum up competition between tenants and push rental yields higher.”

He also reckoned that investors need to be well-armed before diving into the world of property investment. They need to be well aware of aspects such as the best BTL mortgage rates and to be on top of their credit rating.

It is important for investors to focus on property investment in areas that can give them the highest yield and hence, generate ample revenue. The current state of properties in university cities – high demand coupled with good rental yields, undoubtedly makes Liverpool, Manchester and Birmingham a hotspot for BTL investment.

Image Source: http://www.toptravelingsites.net/news/best-university-cities-to-visit-in-uk.htm

Renting is Fashionable These Days

Image from: https://royaltenant.com/blog/blog/rent-vs-buy/
Image from: https://royaltenant.com/blog/blog/rent-vs-buy/

Among the various evolutions Britain is undergoing is its acceptance of renting homes. A sudden decline in homeownership depicts the UK’s new perspective on accommodation: the percentage of householders who own their homes has dropped by 7% since homeownership hit its peak in 2003.

The emergence of the Generation Rent is illustrated by research from PwC, revealing that almost 60% of 20-39 year-olds in England will rent their homes by 2025 with only 26% getting on the housing ladder. Concertedly, government data reveals that the private rented sector has doubled in size since 2004, with almost 50% of people in England aged 25 to 34 paying a private landlord for their accommodation. These statistics point towards a booming buy-to-let sector, with the younger generation playing a very big role.

Worth noting is a more personal perspective on renting. A survey released in January, 2018, reveal that three-quarters of British adults aged 18 to 30 don’t believe they will ever be able to afford to buy a home even though they have full-time jobs.

Philip, 26, from Yorkshire, said this of his experience so far: “By the time you have saved up an extra £1000 towards a deposit, the house values have gone up by £2k, £5k, £10k. It’s impossible.”

Some, like Jamie, a Business Manager for a Health GP Company in Northumberland, have a slightly different view.

“I have no issues with (renting). There is, to a degree, temporised value; you can often live in a nicer area, nicer street etc. for a cheaper monthly payment than a mortgage payment. Some see renting as ‘throwing money down the drain’ but I see it differently. Renting allows you to become, in some odd regard, a more static member of the travelling community.” he says.

Jamie’s welcoming attitude mirrors the widespread acceptance of renting throughout the rest of Europe. In France, just over 50% of the population live in their own properties. And in Paris, the figure is less than one in three. In Germany, house ownership is even more scarce. Only 39% of Germans own the homes that they live in, and in Berlin this figure dwindles down to just a mere 13% of the population owning their own home!

With projections seeing Britain as a new nation of renters, here are 5 reasons why the buy-to-let sector will remain crucial in the UK for some time to come:

1. It’s about 20% cheaper to rent a home in the UK on a monthly basis than to buy (Savills)

Savills calculated the cost of buying vs renting a home. Image credit: http://on.ft.com/2eKm5kU
Savills calculated the cost of buying vs renting a home. Image credit: http://on.ft.com/2eKm5kU

Back in 1996 renting a home used to be 25% more expensive than owning one but in 2007, it became 79% cheaper to rent than to own! According to Savill’s calculation, for a first-time buyer’s monthly costs to be lower than the costs of renting, the purchaser would require, on average, a deposit of at least 39% of the value of the property!

2. Reason #2: House prices greatly surpass wage growth

Growth in house prices vs wages in the UK as at Jan 2016: While UK house prices increased by 7.9% last year, figures from ONS show that the UK median wage increased by just 1.8%. This suggests that house prices are growing more than four times as fast as median wages. Source: ONS. Image credit: http://bit.ly/1SjLa5f
Growth in house prices vs wages in the UK as at Jan 2016: While UK house prices increased by 7.9% last year, figures from ONS show that the UK median wage increased by just 1.8%. This suggests that house prices are growing more than four times as fast as median wages. Source: ONS. Image credit: http://bit.ly/1SjLa5f

A typical home in the UK now costs six times average annual earnings despite slowing house price inflation. According to Nationwide, house prices have risen by 20% over the last three years while wages rose by just 6% — the average price of a house in England today is 6 times the average price it was 3 decades ago!

3. Private rented sector – biggest provider of rented homes

Renting privately is now the norm, according to a PwC report, for those who cannot afford to buy but do not qualify for social housing. By 2025, PwC predicts that 7.2m households will be in rented accommodation, compared with 5.4m today and just 2.3m in 2001. Source: PwC. Image credit: Guardian http://bit.ly/2eTdslz
Renting privately is now the norm, according to a PwC report, for those who cannot afford to buy but do not qualify for social housing. By 2025, PwC predicts that 7.2m households will be in rented accommodation, compared with 5.4m today and just 2.3m in 2001. Source: PwC. Image credit: Guardian http://bit.ly/2eTdslz

The private rented sector has taken over from councils and housing associations as the biggest provider of rented homes with prices paid by tenants in Britain increasing by 2.3% in the 12 months to Sept 2016, according to latest official data.

4. The UK has an undersupply of housing

Housing supply in the UK sharply declines at the end of 2007. Image credit: http://www.prefabmarket.com/uk-housing-crisis-prefab-construction/
Housing supply in the UK sharply declines at the end of 2007. Image credit: http://www.prefabmarket.com/uk-housing-crisis-prefab-construction/

The UK is currently facing the worst housing undersupply since the Second World War. In late 2015, the BBC published an incriminating article on the shortage of housing in the UK, citing the Labour government’s failure to build 240,000 homes by 2016 — a target set in 2007. Brexit-backer Iain Duncan Smith said the UK would need to build 240 houses a day for 20 years to cope with increased demand. The outcome of low supply and high demand are skyrocketing prices. With house prices being raised at unaffordable rates, the best bet would be to rent.

5. Renting: The Preferred Lifestyle

Home ownership is clearly declining among those within the younger age group. This is caused by a number of reasons including affordability and, increasingly, preference (lifestyle).
Home ownership is clearly declining among those within the younger age group. This is caused by a number of reasons including affordability and, increasingly, preference (lifestyle).

While some decide to rent due to economic reasons, some are choosing it based on lifestyle. Millenials are choosing to settle down later in life as they switch jobs and careers more often than their parents. A research conducted by AXA discovered that less than 50% of the research participants are renting because they cannot afford it. The research revealed that many enjoy the freedom and flexibility of being mortgage-free.

With the potential of the buy-to-let sector being a means for lucrative returns already established, the shrewd investor would find it in their best interest to know where, exactly, to get the highest rental yields in the UK! Liverpool and Manchester, specifically, provide great returns!

Unaffordability Makes Millennials Look To Rental Housing

Renting seems to be ultimate choice for the young generations
Renting seems to be ultimate choice for millennials.

Today’s generation are tomorrow’s property owners/investors and landlords, as well as future tenants. Thus, it is vital to observe the trends in the  property market in order to reap the best benefits from our investments.

One thing that’s gotten very clear is that youngsters are becoming more disenchanted with the housing market. Millennials all over the world, especially in major capital cities like London, Manchester, Melbourne — even in Kuala Lumpur — are facing difficulty in getting on to the property ladder.

Affordability is a prime factor that millennials have to consider when  buying a house today. Despite government initiatives provided for first-time house buyers (who are mainly millennials), affordability remains a serious issue, especially if the property of choice is in a prime location.

Chances are that lower-priced properties will not live up to most expectations, namely, convenience and proximity to what matters. Land size is no longer a priority for millennials; rather, easy access to transport links, hospitals, educational institutions, convenience stores, and the city centre are what counts. Even with governmental incentives, properties within reach of affordability are usually located in the outer suburbs, which tend to be less developed than the city centre.

First-time house buyers are getting older

It‘s everyone’s dreams to own a house, provide a shelter to the family members.
It‘s everyone’s dream to own a house and provide a shelter for family members.

Research shows that the average first-time buyer in the UK is now 30 years of age or older, which is 7 years older than in 1960.

In 1960, the average first-time buyer at 23 years old, needed only to pay £595 as down payment. Today, the average first-time buyer will need to save around £20,000 and pay a deposit of £20,622 to be able to own a house. If current property trends continue, this amount will increase as property becomes more valuable in future.

Researchers found that homebuyers in the 1960s spent only two years saving money for their deposits with an average household income of £2,854. Those who bought houses since 2011 spent more than five years saving as deposit amounts kept increasing. As a result, 48% had sought financial help from their parents.

Recently, yet another report noted that the average single first-time house buyer  would need just over 10 years to save for a deposit to buy a house in the UK. Single first-time buyers who just started saving this year would struggle to put together a 15% deposit before the end of 2028, while couples only need five years.

London noted the longest time in saving
Research by Hamptons International show the time needed by singles and couples to save for a home in the UK. Note the time taken to save for a first home in London. Original table from The Guardian.

In London, however, it take first-time buyers 17 years to put down a 15% deposit by 2035, despite house price falls due to Brexit. Goes to show how inflated prices in the UK’s capital city have become as a result of housing supply unable to cater to a growing population. 

In Australia, the typical age for first-home buyers  has increased from 27 years old in the early 1990s to 29 years old in the early 2000s. As at 2017, the average age has increased to 31 years old, with around 20% required as deposit.

Meanwhile, in Malaysia, there is high demand for rental property among millenials as only 33% of them can afford to buy a house due to escalating property prices and slow income growth.

Clearly, home ownership is becoming a big challenge for the young people all over the world. Bad enough that they would have to wait so long to own a house as prices keep rising, what more the taxes they would have to pay later on?

Buy-To-Lets Make Profitable Investments

Millennials especially in the UK and Australia are choosing to rent while saving to own a house. Even more are opting to abandon the idea of homeownership entirely,  preferring to rent instead. Renting and partial homeownership is easier, as well as cheaper, and certainly more favourable compared to a mortgage payment, especially if it means  living in convenience.

This offers a great opportunity for profit in the buy-to-let market  as landlords stand to receive good and regular income from rental property.

Image Sources:

Liverpool, Manchester Named UK’s Top Buy-to-Let Market Again

 Image by Totally Money indicates rental yields across the maritime city of Liverpool.
Image by Totally Money indicates rental yields across the maritime city of Liverpool.

Liverpool, home to the UK’s first-of-its-kind Knowledge Quarter, has been named UK’s top buy-to-let city for yet again. The city has been a top pick for the rental market since 2013 .

The research by independent credit broker TotallyMoney, which surveyed 580,000 properties across England, Scotland and Wales, found that universities outside London provided landlords with the highest yields, with Liverpool claiming top spot at up to 12% average rental yields.

The L6 and L7 postcodes in Liverpool dominated due to its cheaper prices, but also, most importantly, because of their  location which is close to the city’s three main universities. The universities provide a catchment of some 70,000 students, which drive demand for housing.

Landlords have even more to rejoice about as the upcoming construction of the high-speed rail , and (HS2) will continue to boost the economy in Liverpool, thus  driving demand for housing creating opportunities for the buy-to-let investors.

The best buy-to-let cities in Britain

Figure shows two postcodes in Liverpool dominated the top buy-to-let in Britain.
Figures show Liverpool dominating the top ranks of the buy-to-let market in Britain. Info source: Totally Money

Liverpool & Manchester to benefit from Northern Powerhouse development,job vacancy and infrastructural growth

Liverpool is a core city of the UK's Northern Powerhouse. Image from Urbanrealm
Liverpool is a core city of the UK’s Northern Powerhouse. Image from Urbanrealm

Meanwhile, the housing market in Manchester has also been doing well, recording strong average rental yields of up to 10.08%.

Recently, Manchester was also named as the best place to be a landlord in the UK, recording a splendid rental price growth of 5.76%!

Like Liverpool, Manchester is also a part of the Northern Powerhouse, an initiative by the  UK government to create economic balance between the North and South.

Both Liverpool and Manchester will see great development in the future in terms of job opportunities, training, and skills development — a situation that smart property investors  are taking advantage of.

In Liverpool, part of the city’s development involves the massive Liverpool Waters scheme, which will reconstruct brownfield sites into full-fledged neighbourhoods and transform the city’s northern docks into a world-class mixed-use waterfront development.

In Manchester, the population continues growing, thanks in large part to the existence of four central universities which have enforced the student population in the city. With a student catchment of some 100,000, Manchester offers good opportunities for landlords.

London’s lacklustre performance

In the past, London was the main focus of investors looking to capitalise on its massive economic and infrastructure growth as the city centre of UK. Today, Liverpool and Manchester have eclipsed the capital thanks to its strong and varied development growth.

Property yields have not done well in London either due to over inflated property prices. Housing prices have flatlined, with experts predicting that Brexit will cause a downfall in the market based on current trends. What’s clear is that rental yields in Liverpool is seven times higher than London, which unfortunately now sports a high number of postcodes that are listed within some of the UK’s worst areas for buy-to-let yields.