The various economic uncertainties of the last couple of years – namely Brexit, Government pressure on landlords and the COVID-19 pandemic – would ordinarily tempt property experts to predict a slump in the rental market, but the unique nature of some of these economic pressures has ultimately triggered the opposite effect. In 2019 we published an article detailing the best places in the UK to invest in buy-to-let (BTL) properties, but since then the Government has reduced tax relief for property investors and second home buyers, making existing and aspiring landlords think twice about taking the plunge on new investments, but that has had no effect on demand in the rental market itself.
On the contrary, people’s priorities have changed in the face of the pandemic, while economic realities have also led many people to think and plan only in the short term, and that is good news for the rental market. The Office of National Statistics claims there are currently 4.5million rental properties in the UK and it is predicted there will be another 1.2million appearing over the next five years.
Are the best places to invest in buy-to-let property in 2019 still good investments in 2022?
In short, yes they are. We highlighted Glasgow, Nottingham and Newcastle as the best places to invest in buy-to-let property in 2019, and when the article was written the UK faced the worrying prospect of a ‘no deal Brexit’. At the last minute this didn’t transpire, and while the UK economy has struggled with various unforeseen challenges since, the rental market has continued to defy the odds, particularly in the rental hotspots we picked out three years ago.
Glasgow still has a strong economy and a thriving student population, and as the fifth biggest city in the UK is a safe bet to hold its own in terms of property investment. The West End G11 postcode is possibly the most sought-after area of Glasgow, with a strong young professional population and a close proximity to the city centre and universities. Glasgow has also enjoyed some strong corporate investment in recent years, with Barclays’ new Clydeside headquarters one of the headline developments, bringing 2500 jobs to the region.
Back in 2019, the city centre of Nottingham offered the highest rental yield % in the UK according to Comfort Lettings, and naturally this is still a vibrant area to live and work particularly with a post-COVID boom in hospitality recovery. The Lenton area of Nottingham has a traditionally-strong student population and that remains the case, and with its easy access to the city centre and a good concentration of older properties ripe for conversion into house of multiple occupation (HMOs), this remains a strong area for BTL investment.
The property situation in the North East continues to favour investment and presents many investment opportunities. The main attraction here is that properties in this region are generally much cheaper than elsewhere in the UK, and yet, according to Property Forecaster there is strong demand for rental properties in the North East, and areas such as Washington, Hartlepool, Sunderland as well as Newcastle-Upon-Tyne itself, offer good investment prospects.
Our other observations in 2019 were that the investment scene in London was stagnant – that’s largely still the case – and that there were investment opportunities in the Midlands and the London commuter belt. This was mainly on the back of a post-Brexit trend whereby online businesses were opening up huge warehouses to stockpile goods, and there were good job opportunities in places like Northampton, Stevenage, Milton Keynes and Slough, leading to house price growth above the national average. These areas largely still present a good investment opportunity given their good rail and road links to the capital, but in terms of the BTL market, let’s look more closely at the national hotspots in 2022.
What are the best places in the UK to invest in 2022?
The general rule regarding rental yield % has always been that anything over 5% is decent and worth pursuing, but in 2021 anything over 5% was much harder to find. The UK average rental yield is 3.63% at present, according to property management company Clooper, and rental yields have become increasingly localised. It is possible to find small areas in places like Manchester, Birmingham and Leeds where rental yields spike at 6-12%, but the average for those areas is much lower, so it still pays for prospective landlords to do a lot of research.
In 2022 the best places to invest in BTL property are the North West, Yorkshire & Humberside and Scotland. Triggered by growing economies, strong student and young professional populations and “exceptional regeneration projects”, the rental demand in these locations offers the best average rental yields in the UK, and therefore the best investment opportunities.
According to figures published by Zoopla and Seven Capital, the North West (particularly in big cities such as Manchester, Liverpool and around Cheshire) offers the best rental yield in the UK at 4.41%. Yorkshire & Humberside is second with 4.33%, while Scotland is third with 4.11%. The Midlands (Birmingham) and North East (Newcastle) also offer above-average rental returns, while London offers a lowly return of 2.9% rental yield, reflecting its plateaued status for the last five years as a stagnant investment market.
So the London exodus to the strong Northern Powerhouse cities of Manchester, Liverpool and Leeds is still ongoing, and this is also seen in house price growth, as these cities still have the greatest capacity for growth and regeneration in the UK. According to Savills research published on SurrendenInvest the North West is expected to see 4.5% house price growth in 2022, the equal highest in the UK alongside Yorkshire & Humberside. Meanwhile, the North East and Midlands are predicted to see 4% house price growth.
Any BTL investor needs to be confident of seeing capital growth in their investment alongside rental yield potential, and the same research predicts a cumulative growth over the next five years of 18.8% for both the North West and Yorkshire & Humberside. This suggests that any measured and sensible investment in the Northern Powerhouse cities in 2022 carries minimal risk going forwards. In the first half of 2021, average house price growth across the UK was 5.6%, and this is predicted to have hit 9% by the end of 2021, bucking most trends that were predicted for the property market amid Brexit and pandemic uncertainty.
How does the future of the rental market look in 2022?
Rightmove has dubbed them ‘Boomerang tenants’, namely post-lockdown rental seekers who are returning to the big cities in droves as normality slowly resumes. And certainly, the rental market at the moment is all about tenant affordability and a landlord pitching properties correctly for the market. This should lead to good investment prospects if you look towards the strong student and young professional populations in Manchester, Liverpool, Leeds, Glasgow, Edinburgh and Birmingham.
It is expected that rental demand will continue to be strong over the next five years, with a continuation of the big investment recently seen in rental accommodation and development schemes in these big thriving cities. The suggestion that investors avoid London still applies, but the commuter belt satellite towns such as High Wycombe, Reading, Stevenage and Milton Keynes still offer some good opportunities.
But if we are looking at the state of the rental sector in 2022, Leeds is a good example to study. Here there are numerous new developments taking the rental sector into a different market, one where families, young professionals and even students are expecting high-spec, serviced rental accommodation, often in the city centre. This is at a time where Leeds University is over-subscribed already for the 2022/23 academic year as students look forward to a return to face-to-face lectures and tutorials and standard student living post-pandemic, and where the student population is estimated to be around 70,000, more than 9% of the entire city.
These much higher demands from the rental sector are being met by emerging developments, and in the big cities an existing stock of older properties which lend themselves to HMOs, and a hunger for short-term living on reduced costs, means the regional trends in the rental market and the attraction of the big northern cities are likely to remain during 2022 and beyond.